1. ECONOMIC
GROWTH

2. Economic growth has two meanings:
• Firstly, and most commonly, growth is defined as
an increase in the output that an economy
produces over a period of time.
• The second meaning of economic growth is an
increase in what an economy can produce if it is
using all its scarce resources. An increase in an
economy’s productive potential can be shown by
an outward shift in the economy’s production
possibility frontier (PPF).

3. PPF:A curve depicting all maximum output possibilities for two or more
goods given a set of inputs (resources, labor, etc.). It is also called the
production possibility curve or product transformation curve.

4. • The simplest way to show economic growth is to
bundle all goods into two basic
categories, CONSUMER and CAPITAL goods.
AN OUTWARD SHIFT OF PPF
• means that an economy has increased its capacity
to produce all goods. This can occur when the
economy undertakes some or all of the following:
EMPLOYS NEW TECHNOLOGY
EMPLOYS NEW PRODUCTION METHODS

5. INCREASES ITS LABOUR FORCE
– "emigration" means to leave one country or
region to settle in another or to migrate away
from ones native place.
– "immigration" means to move to a new country
from their country of origin, usually for permanent
residence or relocation to a country.
– “Migration” refers to the movement from one
region to another - either within a country or
across national borders.

6. DISCOVERS NEW RAW MATERIALS
EMPLOYS A DIVISION OF LABOUR, ALLOWING
SPECIALIZATION
-how production can be broken down into separate
tasks

7. AN INWARD SHIFT OF PPF
• Means that the productive capacity of an
economy may be reduced. This occurs due to
the following reasons:
RESOURCES RUN OUT
FAILURE TO INVEST
 A failure to invest in human and real capital
 The quality and productivity of labour also depends on
the acquisition of new skills. Therefore, if an economy
does not invest in people and technology, its PPF will
slowly move inwards.

8. NATURAL DISASTER
ASYMMETRIC GROWTH
– An economy can grow because of an increase in productivity in one sector
of the economy.
– For example, an improvement in technology applied to industry Y, such as
motor vehicles, but not to X, such as food production, would be
illustrated by a shift of the PPF from the Y-axis only.
•

9. FACTOR MOBILITY
– If workers, or other resources, are moved from one
sector to another, then the position of the PPF will
change, with an increase in the maximum output in
the industry receiving the resources, and a fall in the
maximum output of the industry losing resources.

10. FACTORS AFFECTING ECONOMIC
GROWTH
• Social and Financial Capital
• Technological Progress
• Investment
• Health
• Social and Cultural
– Education
– Social status
– Tradition
– Religion

11. • Productivity
• Population Growth
– Birth rate
– Death Rates
– Emigration
– immigration
• Better Educated and Healthier Workforce
• Trade
• Resource Expansion
• Ease of Doing Business
– Policy

12. MEASURES OF ECONOMIC GROWTH
• GDP
– The Real GDP Product measures the value of all the
goods and services produced expressed in the prices
of some base year.
Real GDP = Pb*Qt (b is base year ,t is current year)
– The Nominal GDP measures the value of all the goods
and services produced expressed in current prices.
Nominal GDP =Pt*Qt
– GDP deflator An index that can be obtained by
dividing, for each year, the nominal GDP by the real
GDP. (Nominal GDP/Real GDP

13. • 2000 – 2001 4.4%
• 2001 – 2002 5.8%
• 2002 – 2003 3.8%
• 2003 – 2004 8.5%
• 2004 – 2005 7.4%
• 2005 – 2006 7.5%
• 2006 – 2007 9%
• 2007 – 2008 8.7%
• 2008 – 2009 7.1%
• 2009 – 2010 7.45%
• 2010 – 2011 8.5%
• 2011 – 2012 8.2%

14. MEASURES OF ECONOMIC DEVELOPMENT
– GNP PER CAPITA
• GNP per capita (or income per person)= (GNP/Population).
• GNP = GDP + NR (Net income inflow from foreign investment or Net
Income Receipts) - NP (Net payment outflow to foreign
assets).
– OCCUPATIONAL STRUCTURE OF THE LABOR FORCE
• PRIMARY ACTIVITIES are those that directly remove
resources from the earth. Generally they include
Agriculture, mining, fishing.
• SECONDARY ACTIVITIES involve converting resources into
finished products. These are the MANUFACTURING
activities.
• TERTIARY ACTIVITIES comprise the SERVICE sector of the
economy.

15. – URBANIZATION
• Urbanization is the percentage of a country's population
who live in urban areas. Urban areas generally means in
towns and cities of 2,500 or more people. Currently just
less than half of the world’s population lives in urban areas.
Generally as countries develop urbanization increases.
• Note the high urbanization found in the more developed
countries .
– CONSUMPTION PER CAPITA
• Consumption per person is a good indicator of
development. The richer a country is, the more its citizens
consume.
• One consequence of consumption is pollution. Carbon
dioxide (CO2) is released when fossil fuels are used.

16. – INFRASTRUCTURE
• A country's infrastructure is defined as "the
foundations of a society: urban centers, transport
networks, communications, energy distribution
systems, factories, mines, and such facilities as schools,
hospitals, postal services, and police and armed forces.”
– HDI is a very useful means of comparing the level
of development of countries. At present, the
overall average HDI Score of India is 0.547.
• The HDI has two main features:
1. A scale from 0 (no development) to 1 (complete
development).

17. 2. An index, which is based on three equally
weighted components:
Longevity (durability) measured by life expectancy at
birth. A variety of factors may contribute to
differences in life expectancy, including:
• The stability of food supplies
• War
• The incidence of disease and natural disasters
• According to World Bank figures, life expectancy at birth
in developing countries over the past 40 years has
increased by 20 years.
• However, these increases were not evenly distributed.
Indeed, in many countries in sub-Saharan Africa, life
expectancy is falling due to the AIDS epidemic.

18. Knowledge, measured by adult literacy and
number of years children are enrolled at school.
– The percentage of those aged 15 and above who
are able to read and write a simple statement on
their everyday life.
– More extensive definitions of literacy include those
based on the International Adult Literacy Survey.
This survey tests the ability to understand text,
interpret documents and perform basic arithmetic.

19. Standard of living , measured by real GDP