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Development Economics Nature and sources of economic growth Growth as an expansion of national productive capacity economic growth increasing ability of nation to satisfy material wants of its people over period of time Economic growth involves expansion of national productive capacity Production possibilities curve representation of nations productive capacity at given point in time 1All resources fully employed fixed in supply and easily transferable 2technology is constant 3only two goods are produced AB Potential growth capital B AC Actual growth goods C A O Consumer goods Potential economic growth achieved as a result of an increase in national productive capacity - LDCs Actual economic growth rate at which volume of real GS is expanding over time - advanced nations Measurement of economic growth problems of measurement Gross Domestic Product total market value of final GS produced in economy in any one year Main limitations 1Does not include imports - a large source of economic growth - capital importation 2Non-monetary incomes - GDP only measures value of GS which enter into exchange 3depreciation - net addition of production gives a more realistic account 4population changes - population may rise faster than production with living standards falling 5income distribution - real GDP per capita cannot even measure where living standards improving 6composition of output - No indication of division between capital consumer goods 7changes in productivity - do not take into account working conditions under which GDP rose 8the costs of growth - GDP cannot measure satisfaction in the community lostgained leisure 9transfer payments - GDP only registers household incomes received for contribution to production 10Underground economy - payments in cash in particular may go unrecorded - important in LDCs 11Non-material factors - political freedom environment cultural achievement not accounted for 12changes in the value of money - allowance must be made for inflation GDP at current prices nominal GDP annual
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