Factors That Affect Economic Growth

National Income

National Income is the measurement of the flow of services and goods in the economic system. Measurement of income is done by GDP, GNP, NMD, MDP, NI, PCI, HRD, PI, WHI.

Economic Growth

Quantitative economic progress called economic growth. This expresses the quantitative changes in any person, area, or any country

Development, Quantitative and qualitative progress is called development


It is advancement through a series of events or development through time.


It is the consumption and saving opportunity gained by an enmity within a specific timeline for households and individuals. It is the sum of all wages, salaries, profits, interests, payments, rents, and other forms of earnings received in a given period of time.

Capital Goods

Any tangible assets that an organization uses to produce goods or services such as office buildings, equipment, and machinery.


An asset or items that are purchased with the hope that it will generate income or appreciate in future

Net Investment= investment-Depreciation

Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth.

Type of Economic System

There are four primary types of economic systems-

  1. Traditional economic system (product and services, traditional economy),
  2. command economic system,
  3. market economic system,
  4. mixed economic system.

Various Types of Economy

  1. Capitalist Economy 
  2. Socialist Economy  
  3. Mixed Economy 
  4. Open Economy 
  5. Closed Economy 
  6. Economic Growth

Factors that affect economic growth 

  1. Human Resources
  2. Resources depends on its skills, creative abilities, training, and education 
  3. National resources
  4. Capital formation
  5. Technological development
  6. Social and Political development Economic Development

There are two factors-

  1. Economic and
  2. non-economic

Factors responsible for Economic development are:

  1. Capital formation 
  2. Natural Resources 
  3. Marketable surplus Economic system 
  4. Human Resources
  5. Technological knowledge 
  6. Political system Corruption
  7. Desire for development

Sectors of Indian Economy;

  1. Primary,
  2. Secondary,
  3. Tertiary
  4. Organised,
  5. Unorganized,
  6. Public,
  7. Private sectors.

Forms of the economy:

Micro economy(it is the study of decisions of people and business and the interaction of those decisions in the market) and Macroeconomics(It is the study of the national economy as well as the global economy and the way that economic system work. Macroeconomics explains general price level, national income, employment, production, taxes, spending, and deficit on total incomes and price level.


  1. Benefit Approach
  2. Ability to pay approach 
  3. Supply side of economics 
  4. Tobin tax
  5. Zero-based budgeting
  6. Theory of expansion of state expenditure 
  7. Principle of maximum social welfare 
  8. Principle of functional finance
  9. Principle of unbalanced development 
  10. Theory of social productivity
  11. Big push theory
  12. Stages of economic growth


Absence of competition. Results in high prices and inferior goods. Market containing a single firm


Two company holds major share. Results in high prices of inferior goods Oligopoly. The particular market is controlled by a small group of firms

Perfect Competition

There are many buyers and sellers. Prices reflect supply and demand.consumers have many substitutes and new firms enter and generate competition.

Monopolistic competition. Many firms sell the same type of products. Many sellers, product differentiation, free ending

Engels law-people spend a smaller part of their budget on food as income rises Laffers 

Okun’s Law– Relationship between an economy unemployment rate and its gross national product

Gresham’s law. When a government overvalues one type of money and undervalues another type, the value disappears, and hoards and overvalued money will flood the market.

Good money. Shows little difference between its nominal value and its commodity value of the metal

Bad money. commodity value less than that its face value though legal value remains the same

Seys law of markets. when an individual produces a product or service, he or she is paid for work.S/he is then able to use it to demand other goods or service

Keynes’s theory of employment. Effective demand signifies the money spent on the consumption of goods and services and investment. The expenditure is equal to national income and national output. The level of employment depends on the quantity of total production.

Phillips curve. The inverse relationship between the rate of inflation and the rate of unemployment is shown by the Phillips curve. Price stability has a tradeoff against employment. The same level of inflation could be considered desirable to minimize unemployment.

Kuznets Curve. As the economy develops, market forces first increase and then decrease economic inequality

Giffen’s good. when the price increases, the demand also increases. Such goods are called Giffen’s good

Inflation. Inflation is the rate at which the general level of prices for goods and services is rising and consequently purchasing power of currency is falling. There are two types of inflation-demand pull inflation and cost-push inflation

Deflation. when the general prices of goods and service of an economy falls for a significant period of demand causes activities to deceltime.

Stagflation. It is an economic cycle in which there is a high rate of both inflation and unemployment. It occurs when the production of goods and services in an economy slows down or decline.

Depression. any economic downturn where real GDP declined by more than 10% for a long period, Low demand causes deceleration.

Recession. A period of general economic decline causes a drop in the stock market, an increase in unemployment, and a decline in the housing market. It is less serious than depression. It is caused due to high-interest rate, inflation, reduced consumer confidential rate balances, and reduced real wages.

Deflation. It occurs when the prices of goods and services of an economy fall for a significant period of time. It occurs when the inflation rate is below 0% and the supply of money increases slower than the supply of goods and services.

 Disinflation. It is a decrease in the rate of inflation, a slowdown in the rate of increase in the general price level of goods and services in the nation’s GDP.

Reflation. It is an act of stimulating the economy by increasing the money supply, reducing taxes, lowering interest rates.

Price index.

Consumer price index. measures changes in the price level of a market basket of consumer goods and services by household. Annual change measure of inflation.

Wholesale price index. It is the price index of a representative basket of wholesale goods. Focuses on the price of goods traded between corporations than by consumers. Index of Industrial Production. It works outgrowth of various sectors in an economy such as mining, manufacturing.

Social and Economic Development Index.

  • Human Development Index(HDI),
  • Gender inequality index(GII),
  • Inequality-adjusted human development index(IHDI),
  • Gender inequality index(GII),
  • Gross national happiness(GNH),
  • Human poverty index (HPI)
  • Multidimensional poverty index (MPI) are worth knowing for nations wellbeing.

India; A mixed economy…It is a capitalist economy modified by the direct participation as well as intervention by the state in economic activity which in turn, are further counteracted by the countervailing forces of various groups in the democratic framework of income.

Gross and net concept

GDP. It is the total market value of all final goods and services produced during a given time period within the nation’s domestic border.GDP=C+I+G+(G-M)

Gross National Product. This is the value of all the products and services produced in a year by the citizens of the country.GNP=GDP+(X-M)

Net domestic Product=GDP-depreciation or NNP-depreciation National Income=NNP+SUBSIDIES-Indirect tax

Per capita Income=Total National Income/Total National Population Summary of measuring national income

Consolidated Funds

Tax Non-Tax internal & Planned Expdr Planned Expdr Fees external debts Non planned Non planned interest Provident funds, expert

Profit Loan Recovery Duties& small saving Penalties Gov Securities Grants Public Account: Public money is put in and Government acts only as bankers. This is operated by executive action.No need to take consent of parliament

Contingency Fund…Fund kept at the disposal of the President to meet unforeseen expenditure. Operated by Secretary, ministry of finance.

Public receipts. Every receiving to a government by revenue and nonrevenue sources is a receipt. It includes all income as well as non-incomed accruals of government. It is divided into two parts-revenue receipts and capital receipts.

Revenue receipts: These receipts do not create any corresponding liability for the government and cause a reduction in assets of the government. They are of two types-Tax revenue and non-tax revenue.

Capital receipts. These receipts create liability from the government. cause a reduction in assets of the government. They include recovery of loans, borrowings, other receipts

Indian Tax Structure.There are two type of taxes-Direct taxes and indirect tax.Direct tax are levid as central tax(corporate tax,income tax,wealth tax).state tax(profession,agriculture,income,stamp,road tax etc).Indirect tax is also levid as Central tax(service tax,sales tax,excise tax,GST) and state tax(VAT,excise tax on liquor,drugs,cosmatics etc)

Tax-related terminology.

  • Tax avoidance-to reduce the amount or wrong declaration.
  • Tax evasion-illegal evasion, misrepresenting the facts or declaring less income Tax heaven-countries where tax at no rate or low rate
  • Tax Buoyancy. Tax as per the growth of national income
  • Tax elasticity: %change in tax revenue in response to the change in tax rate and extension of coverage


Energy, transport, communication, banking, finance and insurance, science and technology, and social overheads.

Industrial policy. It refers to the framing of rules, laws, and bylaws through which the government controls and regulates the industrial activity to make it conform to overall program policies were made in 1948,1951,1956,1991 and 2011

Maharatna scheme was introduced for central public sector enterprises with effect from May 2010. There were 7 maharanis,17 navratnas, and 57 minivans.

Eight core industries namely coal, crude oil. Natural gas, Petroleum, Fertiliser, Steel industry, cement, and electricity production were named in the index of industrial production.

Micro, Small, and Medium enterprises development act 2006 made two classes one is manufacturing enterprises and other service enterprises.

Manufacturing Service Micro 25 lacs 10lacs

Small 25 lacs up to 5 crores 10 lacs to 2 crores

Medium 5 crores to 10 crores 2 crores to 5 crores

Major industrial Finance institutions; IDBI, SIDBI, IFCI, ICICI BANK 21 Export development centers were established

History of planning in India.

Vishvesvaraya Plan in his book the planned economy of IndiA

Nehrus congress plan not implemented

Bombay Plan by industrialists

Gandhian Plan by Narayan Agarwal. Mainly on agriculture and cottage industry

Sarvodaya Plan-Jaya Prakash Narayan based on Vinoba Bhaves philosophy NDC made by cabinet resolution

Planning commission shut down and Niti Ayog formed.

Niti Ayog...Started from 1.1.2015 with PM as its chairperson to provide strategic and technical advice to central and the state governments. Its governing council consists of all chief ministers of states and lt.governors of UT. Regional councils will be formed to discuss specific issues and contingencies impacting more than one state.CEO and vice-chairman will be appointed by the PM.

Five years plans. The plans were started from 1951.12 plans have been completed. Employment problem was addressed in the 7th plan, poverty removal was focused in 5th plan

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