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Home National Income and its Measurements   Determinants of National Income or Factors Affecting the National Income

Determinants of National Income or Factors Affecting the National Income:

 

There are many determinants or factors which influence the size of the national income. They, in brief, are as follows:

 

(i) The stock of factors of production: One of the very important factors which influences the size of the national income is the quality and quantity of the country's stock of factors of production. The factors of production are land, labor, capital and organization. Land supplies man with gifts of nature. It provides him with agricultural goods and. raw material for production. The production of land depends upon fertility of the soil, latitude, climate and irrigation system in the country. If the land is fertile and is not handicapped in any way say by salinity, water logging, shortage of rainfall and adverse climate, the size of the national income will be quite large, if the quality of land is poor, the size of the national income will be small.

 

(ii) Labor: The second factor of production, i.e., labor is by no means less important. This can be judged from it that if land is not aided by human labor, it cannot produce anything except the wild vegetation. The size of the national income greatly depends upon the quality and quantity of labor in the country. If the labor is efficient and its size is consistent with the means of subsistence, the size of the national income will be large and if the labor is underfed, under clothed and under-housed unskilled, and has no ambition to rise, the size of the national income will be small.

 

(iii) Capital: The volume of production is also very much influenced by the! quality and quantity of capital available in the country. Capital now-a-days is considered to be the lifeblood of the modern industry. If the capital consists of primitive tools, the size of the national income cannot be  large. But if modern types of plants are used for production, then they can enhance the productive capacity of a country.

 

(iv) Enterprise: The size of the national income also greatly depends upon! the number and skill of the entrepreneurs. If the captains of the industries! are efficient, they will combine; the various factors of production to the! optimum proportion and so the volume of total production will be quite large, if managerial skill is lacking in the country, the size of the national income will be small.

 

(v) State of technical knowledge: State of technical knowledge is also one of the very important factors which influences the size of the national income. The methods of production now-a-days have become so much roundabout that unless advance technical knowledge is available in the! country, they cannot be adopted. The roundabout methods of production have considerably increased the production capacity of the country. If the state of technical knowledge is poor in the country, the size of the national income will be small, but if advance technical knowledge is available, then the size of the national income will be large.

 

(vi) Political Stability: Political instability greatly hampers economic progress. If there is political stability in the country, the production can be maintained at the highest level. The size of the national income will be large. In case of political instability, the production will be adversely affected and so the size of the national income will be small.

Relevant Articles:

Macro Economics and its Importance
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Circular Flow of National Income in a Two Sector Economy
Difficulties/Problems in the Measurement of National Income
Determinants of National Income or Factors Affecting the National Income
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Measurement of Gross Domestic Product in Current Price and Constant Price
 

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Definition and Explanation of Economics
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Theory of Supply
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