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 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
technical roundabout that unless advance technical knowledge is available in
the! country, they cannot be adopted. The roundabout methods of
knowledge 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
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