Determination of

National Income
 Introduction
The total value of services and goods which
are produced in a nation during a solitary
financial year is known as the National
Income. The five factors that determine the
size of national income will be highlighted in
the following slides
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.
State of technical 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
knowledge 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.
Labor Force and Human
Capital
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.

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
 Trade and Globalization
All countries that participate in trade benefit, but a
country's benefit will vary depending on changes in the
prices at which it sells its exports and imports.If the
prices of imported goods are lower than those of
exported goods, favorable terms of trade exist. This
means that for the same amount of exports, more
imports can be obtained. As a result, more products are
available and national income rises.
 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.
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
Thanks!
Do you have any questions?