Factors that determine the level of national income in an economy. 

Factors that determine the level of national income in an economy. 

  • The level of investment both domestically and externally. The  higher  the level  of investment,   the higher  the  level  of national   income  but  a low  level  of  investment   discourages   the  production    of goods  and services  hence  low levels  of national  income.
  • The level of exploitation and utilization of the available natural resources. The higher   the level  of utilization   of natural   resources   like  minerals   and  water  resources   in the  economy,   the higher  the level of national  income  and the lower  the level  of utilization   of natural  resources,   the lower  the level of national  income.
  • The size and quality of the labour force (working population). Presence of a big  and  skilled labour  force  increases   production    of  goods  of  services   which   leads   to  an  increase   in  national income. On the other hand, a small-unskilled labour force discourages production hence low levels of income
  • Level of capital stock. Availability of capital in form  of machinery   and  equipment   increases   the level  of  output   and  national   income   while  presence   of  limited   capital   stock  limits   production hence  low level of National   Income.
  • The level of technological progress.   Use   of   better   and   improved    technology     increases production   at reduced average costs hence giving a bigger size of national income.  On the other hand, uses of poor production   techniques reduce output hence low level of national income.
  • Degree of political stability. Political stability encourages investment and growth of national income while political instability leads to break down in production by discouraging investment hence a small size of national income.
  • Market size within and outside   the country.   The  large  market  encourages   investors   which  lead to the  production   of more  goods   and  services  hence  increasing    national   income.   But a small market discourages   investment   and production hence low level of national income.
  • The level of monetization of the economy.   The higher the level of monetization of the economy, the higher the level of national   income.  But a large subsistence   sector discourages   production   and exchange hence low levels of income.
  • Level of specialization in production. The higher the level of specialization   in the economy,  the higher  the level  of national  income  and the lower  the level  of specialization,    the lower  the level of national  income
  • The level of entrepreneurial ability.  Presence of individuals   who can organize   and mobilize   other factors of production leads  to an increase  in production   hence  an increase   in national  income  and absence  of entrepreneurial   skills  discourages   production   hence  low levels  of national  income.
  • Degree of economic stability.   A country  which  is economically    stable  in form  of stable  prices  of goods  and  services  encourages    investments   hence  increase   in  the  level  of  national   income.   But existence of high levels of inflation discourages   investments   hence low levels of national income.
  • Level of saving
  • Land tenure system
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    Mugyenyi Derrick 8 months

    Super information

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