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Factors that Determine the National Income

(i) The quality and quantity of the available factors of production in a country greatly affects its national income as poor quality input implies low national income.

(ii) The level of technological know-how available to a country determines its level of national income. The higher the level of technical know-how, all things being equal, the higher the level of national income of a country.

(iii) A stable political atmosphere is necessary for economic stability and prosperity. A politically unstable country scares foreign investors away, thus depriving the country of additional income, which would have been generated as a result of their investing in the country.

(iv) The fourth determinant is the level of infrastructural development available in the country. A well developed social and economic infrastructure in a country always attract investors, thus leading to higher productivity and, therefore, higher income.

Standard of Living

The standard of living can be defined as the extent to which families are able to satisfy their basic and luxurious needs at a particular time. A family that is able to feed, clothe, educate and house its members with the best quality of goods and services, has a higher standard of living than one that is barely able to feed its members.

The standard of living of a country is determined by the size of the population and the national income, its distribution and the prices of goods and service sold in it. A low national income means a low standard of living for a country with very high population. A high national income with a low population implies a high standard of living. On the other hand, a high national income does not automatically imply a high standard of living, as the income could be concentrated in the hands of some few rich citizens who enjoy a high standard of living.

Cost of Living

This is the total amount of money that an individual can spend on the purchase of goods and services needed by him at a particular point in time in order to survive. The main factor influencing the cost of living is the price of goods and services, The higher the prices, the fewer the number of goods that can be purchased by an individual with a given level of income and, therefore, the higher his cost of living and vice versa.

The effect of a high cost of living is to reduce the standard of living of its citizens while a low living cost leads to a higher standard of living.