Answer to Question #156334 in Economics for Lora

Question

how to increase the level of national income

Answer 1

National income is the total amount of goods and services that are produced by the economy in a year. There are various method for measuring National Income: Gross Domestic Product (GDP), Gross National Product (GNP), Net National Product (NNP) etc. Let's consider the GDP. Let's analyze how the GDP can be increased and, hence, increased the National Income.

The GDP is the total amount of goods and services produced by a country during a year. The GDP can be calculated as follows:

$$GDP=C+I+G+(X-M),$$

here, $C$ is consumer spending, $I$ is investment spending, $G$ is government spending, $X$ is exports of goods and services and $M$ is imports of goods and services.

Increase in real GDP is caused by two factors: increase in aggregate demand (in short-run), increase in aggregate supply (in long run).

There are several factors that increase the aggregate demand: higher real wages, lower tux, government spendings, lower interest rates.

There are several factors that increase the aggregate supply: increased investment, higher labour productivity, improved technology, discover raw materials.

Answer:

The level of National Income can be increased:

a) by increasing the aggregate demand in short run.

b) by increasing aggregate supply in long run.