A Clarification about Net Factor Income (week 03)

The topic will be out of all tests/exams in the 1st semester 2023-24

Some students have doubts about the definition of Net Factor Income (NFI) and the role it plays in the relationship between GDP (Gross Domestic Product) and GNP (Gross National Product). Throughout this semester, we have followed the textbook’s treatment of this topic (see pages 29–30).

Unfortunately, the textbook is short on this topic, and the numerical example it provides is not a good one. This example is presented on page 30 (see Table 2.2) and seems to follow a definition of NFI that is highly questionable. For this reason, the best option is to drop this topic from any assessment this semester.

In the two figures below, we clarify the definition of NFI and the relationship between GDP and GNP.

The easy way to deal with NFI, GDP and GNP

Figure 1: The easy way to deal with NFI, GDP and GNP

The textbook treatment of NFI, GDP and GNP

Figure 2: The textbook treatment of NFI, GDP and GNP