Scribd
Upload
37 views4 pages

Econ 220 Assignment One

National income is influenced by factors of production including labor, capital, natural resources, technology, entrepreneurship, and government policies. It is measured using indicators like GDP and used to assess economic growth, compare performance between economies, and inform policymaking and resource allocation. However, national income has limitations in that it excludes non-market activities, provides no information on quality of life, and fails to account for externalities and environmental costs.

Uploaded by

Shadrack Cosyk Koima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
37 views4 pages

Econ 220 Assignment One

National income is influenced by factors of production including labor, capital, natural resources, technology, entrepreneurship, and government policies. It is measured using indicators like GDP and used to assess economic growth, compare performance between economies, and inform policymaking and resource allocation. However, national income has limitations in that it excludes non-market activities, provides no information on quality of life, and fails to account for externalities and environmental costs.

Uploaded by

Shadrack Cosyk Koima
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 4

KABARAK UNIVERSITY

ECON 220: INTERMEDIATE MACROECONOMICS

1. Discuss the factors of National income


I. Labor: Labor is a significant factor of production. The quantity and
quality of labor contribute to the production of goods and services in an
economy. Factors influencing labor include population size, workforce
participation rates, education levels, skills, and labor productivity.
Higher levels of labor force participation and productivity tend to lead to
increased national income.

II. Capital: Capital refers to physical and human capital used in


production. Physical capital includes machinery, equipment,
infrastructure, and technology, while human capital encompasses the
skills, knowledge, and experience of the workforce. Investment in both
physical and human capital can boost productivity and contribute to
economic growth, thereby increasing national income.

III. Natural Resources: Natural resources such as land, water, minerals,


and energy are essential inputs to production. The availability and
quality of natural resources influence the productive capacity of an
economy. Economies rich in natural resources may experience higher
levels of national income, particularly if those resources are effectively
utilized and managed.

IV. Technology and Innovation: Technological advancements and


innovation play a crucial role in driving economic growth and increasing
national income. New technologies can lead to efficiency gains, lower
production costs, and the creation of new products and industries.
Investments in research and development (R&D), as well as the adoption
and diffusion of existing technologies, contribute to economic progress
and higher levels of national income.

V. Entrepreneurship: Entrepreneurship involves identifying business


opportunities, organizing resources, taking risks, and innovating to
create value. Entrepreneurial activity fosters economic dynamism, job
creation, and innovation, all of which contribute to economic growth and
higher national income levels.

1
VI. Government Policies and Institutions: Government policies and
institutions shape the economic environment and affect national income
through various channels. Fiscal policies (taxation, government
spending) and monetary policies (interest rates, money supply) influence
aggregate demand, investment, consumption, and overall economic
activity. Additionally, institutions such as property rights protection, rule
of law, and regulatory frameworks impact entrepreneurship, investment,
and productivity, thereby affecting national income.

VII. Trade and Globalization: International trade and globalization have


become increasingly important factors influencing national income.
Trade openness allows countries to specialize in the production of goods
and services in which they have a comparative advantage, leading to
efficiency gains and increased national income. Globalization facilitates
the flow of capital, technology, and ideas across borders, contributing to
economic growth and integration into the global economy.

2. Explain the main uses and problems of national income


Uses of National Income:
I. Measure of Economic Growth: National income serves as a primary
measure of economic growth and development over time. Increases in
GDP indicate that the economy is expanding, leading to higher standards
of living, improved infrastructure, and increased employment
opportunities.

II. Comparison of Economic Performance: National income allows for


comparisons of economic performance among countries or regions. It
provides insights into relative levels of prosperity, productivity, and
economic activity, helping policymakers identify areas for improvement
and learn from successful strategies implemented elsewhere.

III. Policy Formulation and Evaluation: National income data are used by
policymakers to formulate and evaluate economic policies. Governments
rely on GDP figures to assess the effectiveness of fiscal and monetary
policies, such as taxation, government spending, interest rates, and
money supply management, in achieving macroeconomic objectives like
price stability, full employment, and sustainable economic growth.

2
IV. Allocation of Resources: National income data inform decisions about
the allocation of resources within the economy. Businesses use GDP
figures to identify growth opportunities, allocate investments, and make
production and pricing decisions. Individuals also use economic data to
plan their consumption, savings, and investment activities.

V. Forecasting and Planning: Economists and analysts use national


income data to forecast future economic trends and plan accordingly.
Projections of GDP growth, inflation rates, and employment levels help
businesses, governments, and individuals make informed decisions
about resource allocation, investment strategies, and policy responses.

Problems of National Income:

i. Excludes Non-Market Transactions: National income primarily


measures economic activity in the formal market sector and excludes
non-market transactions, such as household production, volunteer work,
and informal sector activities. As a result, it may not fully capture the
value of goods and services produced in the economy, leading to an
underestimation of economic output.

ii. Quality of Life and Distributional Issues: GDP does not directly
account for changes in quality of life, income distribution, or social well-
being. It focuses solely on the total value of economic output and does
not consider factors like income inequality, environmental sustainability,
health outcomes, or subjective measures of happiness and satisfaction.

iii. Ignores Externalities and Environmental Costs: National income


does not adequately account for externalities, such as pollution,
depletion of natural resources, and environmental degradation, which are
not reflected in market prices. Failure to consider these costs can lead to
overestimation of economic welfare and sustainability.

iv. Doesn't Capture Informal Economy: National income may


underestimate economic activity in the informal sector, where
transactions are not recorded or reported to authorities. This includes
activities like street vending, unregistered businesses, and informal
employment, which contribute to overall economic output but are not
fully captured in official statistics.

3
v. Doesn't Measure Household Production: National income does not
account for household production and unpaid work, such as childcare,
eldercare, and domestic chores, which are essential for maintaining
households and supporting economic activity. As a result, it may
undervalue the contributions of unpaid labor, particularly in economies
where household production is significant.

You might also like