Economic Growth

and Developmen

t

Definition and MeasurementEconomic growth: the annual rate of increase in total production or income in the economy.  Production/income measured in

real terms.Figures adjusted for population

growth. (per capita)

Problems with GDP as measure of total production

Non-market productionDifficulty measuring value of activities

not sold in a market. E.g production by government (valued at

cost) Farmers’ consumption of their own

produce. Unrecorded activityKnown as…Unrecorded, underground economy,

shadow economy & informal sectorE.g smuggling, drug-trafficking and

prostitution.  

Data revisionsOriginal estimates frequently

adjusted.

Economic welfare not accounted forNegative externalities Difficult to account for changes in

qualityDistribution of production and income

Calculating economic growth

Calculated on an annual basis.  To calculate economic growth in 2008 = real GDP for 2008 x 100real GDP for 2007 1

The business cycle

SA’s business cycle

Causes of business cycles

Different schools of economic thought….

The classical economists Believe that economies are inherently

stable. Fluctuations are temporary caused by

exogenous factors William Stanley Jevons “sunspot” theory of

the business cycle. Believe gov. should leave market system

to its own devices - market forces will sort out economic problems

Keynesian EconomistsBelieve business cycle caused by

endogenous factors. Governments have a duty to

intervene in the economy.

Business conditions improve

Reinforced by

multiplier.

Strong upswing results

Interest rates, & imports

increase.

Peak reached

Decline begins

Interest rates, & imports

decrease.

Trough reached

OPPOSING VIEWS ON THE BUSINESS CYCLE

Structuralist or Institutionalist Explanation Fluctuations caused by structural/institutional

changes.Market system NOT inherently stable or

systematically unstable.In SA’s case…the oil shocks of the 1970the imposition of trade and financial sanctionsthe political unrest and uncertainty of the

1980sthe political transition of the 1990schanges in technology and production

techniques.

Appropriate policy will vary from time to time.

Based on the information on the next slide, you need to produce a visual business cycle of South Africa. Your presentations will be judged on…CreativityEconomic knowledgeAccuracyPresentation