Economics - Advanced National Examination Paper 2 - 2013

2013 – ECONOMICS PAPER 2

SECTION A
1.
(a).
Explain five factors that determine the National Income of the country.

National income is the sum of the market value of all goods and services produced by
the country’s citizens in a specific period of time, for example in a year.
OR
It is the value of all incomes received by the country’s citizens in a specific period of
time, example a year.
The following are determinants of the national income of the country:-
Available stock of natural resources: Availability of a large stock of natural resources
such as minerals, water sources, soils, favourable weather conditions, etc. influences
the growth of the national income while low stock of natural resources leads to low
production and consequently to low national income.
Stock of capital goods: The size of the national income depends on the size of the
capital goods available in a country. If the size of capital goods such as factories,
machines, infrastructures and raw materials is large a country experiences faster growth
of its national income unlike when it is facing a shortage of those goods.
Level of technology: The size of national income depends on the level of technology a
country has achieved. If a country applies advanced technology, its output/production
as well as national income will be large.
Availability human resources: Exploitation of national resources depends on
availability of both skilled and unskilled labour, managerial capacity, efficiency and the
number of entrepreneurs.
Terms of trade: This is the ratio of the price index of exports and price index of imports.
If the price index of a country’s exports is greater than the price index of imports, then
the national income will grow since more income will be received through exports unlike
when the terms of trade is unfavourable.
(b).
What are the measures which can be used to reduce income inequality in
Tanzania? (Give five points)

Income inequality refers to differences in income or wealth among the people which
causes some to become high income earners and others becoming low income
earners.
The following are measures to reduce income inequality:
Minimum wage legislation: In order to reduce income inequalities, the government
has enacted a law requiring every employer to pay a minimum wage not below that
which is regularly reviewed and announced in its annual budgets. This law should be
enforced.
Subsidies and transfer payments: The government should provide subsidies to the
poor in terms of inputs such as fertilizers to peasants, tuition allowance to students
coming from poor families, subsidized health and other essential social services and
subsidies to industries which produce essential goods which are consumed by the
majority.
Control ownership of major means of production: The government can reduce
income inequality by controlling ownership of major means of production e.g. land to
ensure that the majority of the people in the country have access to them.
Decentralization of industries: The government can reduce income inequality by
establishing infrastructures such as roads, electricity, and communication networks in all
regions of the country in order to influence, attract and facilitate allocation of
investments like factories, trade activities, etc. in all regions.
Micro-financing: These are small scale credits that are provided to the poor groups in
the society to enable them to establish small scale businesses that can support them,
their families and dependants. Therefore the government should make sure that micro-
financing institutions are established all over the country to render these services. They
should be enabled to mobilize the rural population and organize them in small groups
(Saccoses).
2.
(a).
Distinguish between the following concepts as used in taxation:
(i) Tax evasion and tax avoidance
(ii) Taxable capacity and tax base
(iii) Taxation and subsidization
(iv) Progressive tax and proportional tax.

(i) Tax evasion is refusal by the tax payer(s) to pay tax(es) imposed on
them WHILE tax avoidance is a situation whereby tax payers dodge paying taxes by
exploiting the loopholes existing within the tax system.
(ii) Taxable capacity is the ability of the tax payer to pay the tax assessed on him and
at the same time retaining a reasonable level of income to enable him to live the life he
is accustomed WHILE Tax base is the assessed value at a set of assets, investments
or income streams that are subject to taxation or the assessed value of a single asset
that is subject to taxation. Anything that can be taxed has a tax base.
(iii) Taxation is the act or practice of imposing taxes on individual properties like land,
firms, etc. WHILE Subsidization is a benefit given by the government to groups or
individuals usually in the form of cash payment or tax reduction.
(iv) Progressive tax is a system where the rate of taxation increases as the income of
the tax payer increases. It takes a greater percentage of income or wealth from the
highest income earner or wealthier groups than it does from the lower income
earners WHILE Proportional tax is one where the rate of taxation is proportional to all
income earners or it is a system in which the percentage of tax is the same for all levels
of income.
(b).
Explain six cannons of public expenditure
Public expenditures refers to the spending by the government in various areas. There
are two types of public expenditures – recurrent expenditures and development
expenditures.
Recurrent expenditures refers to the government spending on public consumption such
as education, health and salaries to civil servants. Development expenditures refer to
government expenditures on development projects such as construction of roads,
railways, communication networks, etc.
Below are the six (6) principles of public expenditure:-
Principles of maximum social advantage: Government expenditure should be
incurred in such a way that it should give benefit to the community as a whole. The main
aim of public expenditure is provision of maximum social advantage. If one section of
the society or one particular group receives benefits of the public expenditures at the
expenses of the other society or particular group then the public expenditure should
consider those who pay expenses for the other group of society so as to obtain
maximum social advantages to both parties involved.
The principle of economy: It requires that governments should spend money in such a
manner that all wasteful expenditure is avoided. Economy does not mean miserliness or
niggardliness. By economy we mean that public expenditure should be increased
without any extravagance and duplication. If the hardened money the people collected
through taxes is thoughtlessly spent the public expenditure will not conform with the
cannon of economy.
Principle of sanction: According to the principle, all public expenditure should be
incurred by getting prior sanction from a competent authority. The sanction is necessary
because it helps in avoiding waste, extravagance and overlapping public money.
Moreover, prior to approval of public expenditures it makes it easy for the audit
departments to scrutinize the different items of expenditure to see whether the money
has not been overspent or misappropriated.
Principle of balanced budgets: Every government must try to keep its budget well
balanced. There should be neither ever recurring surpluses nor deficits in the budgets.
Ever recurring surpluses are not desired because it shows that people are
unnecessarily heavily taxed. If expenditures exceed revenue every year, then that too is
not a healthy sign because this is considered to be a sign of financial weakness of the
country. The government therefore must try to live within its own means.
Principle of elasticity: It requires that public expenditure should not in any way be
rigidly fixed for all times. It should be rather fairly elastic. The public authorities should
be in a position to vary the expenditure as the situation demands. During the period of
depression, it should be possible for the government to increase expenditure so that the
economy is lifted from low level of employment. During the period of boom, the state
should be in a position to curtail the expenditure without causing any distress to the
people.
No unhealthy effect on production and institution: Public expenditure should be
arranged in such a way that it should not have adverse effect on production or
distribution of wealth in the country. It should aim at stimulating production and reducing
inequalities of wealth distribution. If due to unwise public spending, wealth gets
concentrated in a few hands, then its purpose is not served.
3.
(a).
Describe five significance of environmental conservation.

Environment conservation is a practice of protecting the environment at individual,

organization or government level.
The following are five(s) significances of conservation of environment:
Reducing global warming: Global warming is the increase of temperature in the
atmosphere due to destruction of the environment. When we conserve the environment
like afforestation and reforestation, it leads to decrease of temperature through trees
which absorb carbon dioxide and release oxygen.
Soil formation: The process of conservation of the environment leads to the formation
of soils through the decomposition of organic materials done by living organisms which
exist in the soil. When the environment is destructed, it leads to the disappearance of
some living organisms which decompose organic materials.
Reducing diseases: Environmental conservation is important because it reduces the
number of diseases by reducing the number of industries which spread poisonous
smoke to the environment and cause respiratory diseases as well as cholera due to
poor sewage systems.
Making the environment attractive: A conserved environment has no poor sewage
systems, oil spills, air pollution, etc. therefore such areas attract people to visit them.
For example, tourists from all over the world like to visit Mikumi National Park,
Ngorongoro, Katavi, etc. because they have been well conserved and hence the
government gets revenue through tourism.
(b).
Analyse five measures to be taken in Tanzania to achieve sustainable development.

Development is a gradual process whereby a certain society or country grows and

moves from a low level (poverty) to a higher or better level, thus becoming stronger
economically.
The following are suggested measures to be taken in Tanzania so as to achieve
sustainable development:-
Commitment of the leadership: Patriotism of leaders which demands/emphasizes
proper utilization of public funds for national development and not for personal interests.
Committed and accountable leaders will enable the country to achieve sustainable
development.
Promotion of science and technology: African countries depend on science and
technology from developed countries which is very expensive to the extent that some
countries cannot afford.
Proper utilization of natural resources: Tanzania has started to utilize her natural
resources for national development and not for personal interest. Tanzania is endowed
with a lot of natural resources such as wild animals, a variety of minerals like diamonds,
tanzanite, gold, forests, etc. Efforts are being taken to utilize them properly which will
lead to sustainable development in our country.
Privatization: It is the transfer of the ownership of public enterprises from state to
private institutions and individuals. Privatization leads to competition between public
sector and private sectors as result the production of goods and services increases and
the people are in a position to buy goods and service of high quality at affordable prices.
Improving agricultural sector: This sector provides employment opportunities to a
large number of people and contributes about 60% to the national income of the
country. Tanzania is required to improve this sector by providing subsidies to peasants,
improving infrastructures such as roads, warehousing, etc. in order to achieve
sustainable development.
4.
(a).
Examine five benefits of Free Trade to the countries of East African Community.

Free trade is that situation in which the government doesn’t impose restrictions on the
import and export of goods and services. Examples of such restrictions are tariffs,
import quotas, devaluation of currency, etc.
The following are benefits of free trade:-
Transfer of technology: A country can get technology from other countries through
importation and direct investment. For example, most of the developing countries
depend on technology from developed countries like USA, UK, Germany, Japan
France, etc.
Increase in efficiency of local firms: This is because they are exposed to competition
against more efficient foreign firms. With free trade there are more incentives for local
firm protected through tariffs.
Increase in the volume of world trade: This will lead to economies of scale in various
countries as traders in one country sell goods and services to other countries without
any kind of trade barrier. As a result the volume of trade will rise.
Increase in welfare of consumers: This is because they are able to purchase varieties
of higher quality goods from abroad at low prices.
Gain from trade: Free trade allows countries to gain from international trade through
comparative advantage whereby a country specializes in the production of a commodity
in which it has the greatest comparative advantages over other countries.
(b).
State the necessary conditions for the success of economic integration. (Give five
points)

Economic integration is the combination of selected economies so as to trade freely

among member countries. There are five forms of economic integration, namely free
trade, customs union, common market, economic union and common monetary union.
The following are necessary conditions for successful economic integration:
Good infrastructures: Member countries must have good infrastructures such as
roads, railways, communication networks, etc. so as to facilitate easy movement of
goods and people from one area to another.
Political will and commitment: Political leaders must be willing and committed to
implement various resolutions that are made and make necessary decisions for the
betterment of the integration.
Common language: It will ease communication among the people in the region when
they engage in socio-economic and political activities.
Same level of development: In order to reduce uneven distribution of gains among the
member countries, they should have attained the same level of economic development.
If the gaps of development are too wide, rich members will gain more than poor ones.
Member countries must be neighbours: It is easier for member countries to engage
in economic activities and establish joint institutions when they are close neighbours in
terms of geographical location than when they are located a far distance from each
other.
5.
(a).
Analyse six limitations of credit creation in commercial banks.

Credit creation is the process under which commercial banks advance loans many
times greater than the excessive reserves.
The following are limitations of credit creation:-
Liquidity ratio: It is that ratio which commercial banks keep reserves to meet the
demand of the deposits. If the reserve ratio (liquidity ratio) is low then the creation of
credit will be higher and vice versa.
Power of the borrowers: Commercial banks advance loans to the people who possess
some assets which can be used as securities for their loans. If borrowers have such
assets then it becomes easier for them to secure loans from banks. But if they don’t
possess any assets it becomes difficult for them to get loans from banks.
Economic depressions: During economic depression, demand for credit is very low;
therefore credit creation is limited. During economic depression, purchasing power of
the people decreases leading to decline in economic activities, hence low credit
creation.
Poor saving habits among the people: Many people in less developed countries don’t
have the habit of saving money into banks due to lack of knowledge about the
importance of saving money and services rendered by banks. Therefore banks fail to
accumulate enough money that can be used to give loans.
Leakage of money out of the banking system: If for some reasons some money
leaks out of the bank system, that is, if money borrowed is not re-deposited in any bank,
then the process of credit creation will not be effective.
Rate of interest: It is the cost of borrowing; if the rate of interest is high borrowers are
discouraged to borrow more and the process of credit creation is limited while if it is low
borrowers will be encouraged to borrow more money and therefore the process of credit
creation will be high.
(b).
Evaluate four roles of commercial banks in promoting economic development.

Commercial banks are the banks that offer a very wide range of banking services to
the society. They are established mainly to earn profit and the main source of earnings
of these banks is the interest charged on the issued loans.
The following are the roles of commercial banks in promoting economic development:-
Provision of loans: Commercial banks play a great role in providing loans to the public
for different purposes. Some people take loans for establishing business activities such
as retail trade, wholesale trade and international trade while others take loans for
constructing houses for settlement and hence contribute to economic development.
Employment opportunities: Commercial banks such as NBC, NMB, EXIM bank,
Diamond Trust Bank, etc. provide employment opportunities to people with the
knowledge of accountancy, banking and financial management.

Source of government revenue: Commercial banks are operated as joint stock

companies, so they are required to pay taxes to the government. Corporation tax is the
tax charged on the profits of companies. When commercial banks make profits from
their operations a certain percentage is charged and submitted to the government.
Controlling inflation: Commercial banks are used to control inflation by reducing the
quantity of money in circulation. During times of inflation the central bank initiates
various measures that are implemented by commercial banks such as special credit,
special deposit, legal reserve requirement, etc. in order to reduce the amount of money
in circulation and purchasing power of the people. By doing so inflation is put under
control.
SECTION B
6.
(a).
Explain how the law of comparative advantage differs from the law of absolute
advantage.

How the law of comparative advantage differs from the law of absolute advantage
The theory of comparative advantage which was advanced by David Richard states
that “even if one nation is less efficient in production of both commodities and another
nation is more efficient in production of both commodities still there is basis for mutual
beneficial trade between the two nations. Each nation will benefit by specializing in
production and export of a commodity in which the opportunity cost of producing the
commodity is lower and import the commodity in which the opportunity cost of
producing the commodity is higher.”
The theory of absolute advantage has been advanced by Adam Smith, father of
Economics. It states that “if a nation is more efficient than another nation in production
of a certain commodity but is less efficient than another nation in production of another
commodity then both nations can gain by specializing in production of a commodity of
its absolute advantage.”
(b).
What are the criticisms of the theory of comparative advantage? (Give 8 points).

The following are criticisms of the theory of comparative advantage:-

It assumes that there are two nations and two commodities: This is unrealistic
because there are many nations each producing more than one commodity.
Multilateral trade: It is the trade in which a country trades with a number of countries.
Therefore the theory of comparative advantage doesn’t apply when there is multilateral
trade.
Absence of transport is unrealistic: Transport cost is very important in the production
process because production is incomplete if the goods or services produced do not
reach in the hands of consumers. International trade involves transport cost by
transporting goods from one country to another.
Labour is not the only factor of production: For production to take place, economic
resources such as land, labour, capital and entrepreneur are required. But the theory of
comparative advantage considers labour as the only factor of production which is not
true.
Labour is not homogeneous: According to the theory of comparative advantage
labour is identical in all countries. That is not true because labour in one country differs
from labour in another country in terms of skills, experience, age, sex, etc.
Distribution of gains is not even: According to this theory countries are equally
gaining from international trade but this is unrealistic because they differ in their level of
development. The more advanced country gains more than the less developed one.
Factors of production are not perfectly mobile: According to this theory, factors of
production, especially labour is perfectly mobile which is unrealistic because labour in
some cases cannot move easily from one occupation to another due to some reasons
such as age, kind of skills owned by the labour, social factors, etc.
7.
(a).
Explain five necessities of decentralized planning in Tanzania.

Decentralized planning: This is a system whereby each region or district makes its
own plans which integrate all activities, programmes and projects within the region.
Such plans should be in line with attainment of national objectives.
Below are necessities of decentralized planning:-
It must be social and rational institution process: A plan is to be social in the sense
that its formulation involves people and it is made for the people. The plan is intended to
achieve specific objectives for the benefit of the people. It is a rational, institutional
process meaning that a plan is made by a certain institution responsible for the
formulation of plans which follow objective principles consistent with the needs of the
society.
It must be free from the central government: Decentralized planning must eliminate
the interference of the central government in regional or district development plans. For
example, comprehensive planning is a type of planning whereby all sectors of economy
are taken into considerations and it is made by the central government to meet the
needs of the whole country. Therefore the plans made by the local governments must
not collide or contradict those made by the central government.
It must take into account the local environment: Plans made by the local
government should consider the environment in which its people live. For example, if
there is a certain region or district with fertile land for agricultural activities, the local
government will be required to make plans for promoting and developing agricultural
activities such as provision of inputs at subsidized prices.
It must relieve the central government from the hard task of planning for the
whole economy: Often times the central government through its ministries makes
plans for the whole country but this is a difficult function to be performed well as the
country is composed by a great number of vast regions and districts. Therefore local
governments have to make decentralized plans which will relieve the central
government from making plans for regions and districts.
It must encourage utilization of local resources, especially manpower, to
implement the plans: For example, the plans should aim to reduce financial burden
from the government by introducing cost sharing systems whereby the citizens
contribute a certain amount of money when they use public services and goods such as
public hospitals and schools. But the plan may not be successful without involving
people. Therefore the plan made by the local government must involve the people.
Limited bureaucracy: The plans made by the local government must involve few
government officers when they are being formulated. This must be done purposely in
order to reduce probable barriers in their formulation and implementation.
It must provide development opportunities equally within the regions: Plans made
by the local government must take into account equality among districts in a certain
region. For example, if there are poor roads in that region the plans made must consider
the improvement of roads in all districts which have poor infrastructures without
favouring some districts.
(b).
Evaluate five limitations of implementing decentralized planning.

Below are limitations of decentralized planning:-

Lack of planners at regional level: Planning is a profession which needs people with
deep knowledge of economics, statistics, mathematics, etc. Few people specialize in
this field; therefore there is a shortage of planners in the local government to prepare
decentralized plans.
Corruption at the regional level: Corrupt leaders at the local government undermine
the implementation of plans by colluding with implementers to squander funds allocated
to build infrastructures.
Imbalance in development: There is a tendency of improving the infrastructures such
as roads and communication networks in district whereby there is development of
industries and trading activities and marginalizing those districts without industries and
hence no equal development opportunities.
Poor coordination among regions: Implementation of some projects requires
involvement of more than one region to coordinate in their plan. Because each region
has its own different plans and policies coordination becomes so difficult.
Lack of information: Planners in the local government need information in order to
formulate and implement plans. Lack of reliable, timely and accurate information on
various socio-economic variables such as population and economic activities, statistics,
makes it very difficult for planners to make different plans for the local government.
8.
(a).
Outline five functions of the Board of External Trade.
The Board of External Trade is a public institution established with the responsibility of
promoting external trade particularly Tanzania exports in foreign markets among other
duties.
The following are functions of the Board of External Trade:
Marketing of Tanzania’s products in foreign markets: It performs this role by
advertising and finding the markets. By doing so the markets for our products increase
as well as earnings of foreign currencies.
Educating manufacturers on how to improve the quality of their products in order to
get bigger market abroad. For example, it advices traders how to pack goods in good
packages, wrappers, etc.
Arranging trade fairs and exhibitions in foreign countries: The Board of External
Trade (BET) hires spaces or buildings in foreign countries for the purpose of exhibiting
our products.
Publishing and providing information on possibilities of expansion of
exports: After conducting market research, the board provides information on all
matters concerned with exports to Tanzania exporters.
(b).
Describe five problems of marketing Boards.

Marketing boards are trading organizations formed/established by the government for

the purpose of buying and selling local agricultural products.
The following are problems faced by marketing boards
Government interference: Marketing boards are not fully autonomous/independent –
they are often interfered by the government in some decisions such as price fixing.
Price fluctuation in the world market: Prices of agricultural products in the world
market often fluctuate due to discovery of synthetic materials such as nylon and plastic
in the developed countries raising complaints from peasants against them.
Problem of overproduction of crops: Subsidization of farming inputs by the
government, ample rains due to favourable weather and climate sometimes enables
farmers to overproduce. This causes prices to fall on the market.
Untimely payment to farmers: In most cases marketing boards fail to pay farmers on
time due to lack of funds. Most of the marketing boards in Tanzania do not have
sufficient amount of capital that could be used to buy crops in cash so they fail to timely
settle debts of farmers from whom they often buy their crops on credit.
Competition from private buyers: After introduction of the trade liberalization policy in
the country, marketing boards have been facing stiff competition from private buyers
because they are so efficient and offer better prices.
9.
Agricultural development is necessary for industrial development in Less Developed
Countries. Discuss. (Give 8 points)

Agricultural sector is a sector which is involved with farming and other activities which
produce raw-materials such as mining and fishing. In Tanzania about 80% of the people
are employed in this sector and it contributes about 60% of the country’s gross domestic
product.
Agricultural development is necessary for industrial development in less developed
countries due to the following reasons:-
It provides inputs to the industrial sector in form of raw materials such as cotton. Most
industries depend on raw-materials produced by the agricultural sector in order to
produce goods. For example sugar company need sugar cane for the purpose of
manufacturing sugar for selling.
It provides market for industrial products such as fertilizers, hand hoes, pangas,
tractors, inorganic fertilizer, etc. which are sold to the agricultural sector to improve land
productivity and for killing some harmful living organisms which destroy crops.
It provides food to the industrial workers: Agricultural sector produces various food
crops such as rice, maize, sweet potatoes, cassava, tomatoes, onions, etc. which are
purchased by industrial workers in order to obtain food and creating energy for their
bodies.
It provides a reserve army of labour who can be employed by the industrial sector
any time when demand arises. Workers in the agriculture sector may be employed in
the industrial sector in case they are demanded, thus solving the problem of scarcity of
workers in the industrial sector.
It provides a good source of capital accumulation which can be used to develop the
industrial sector. By selling industrial products to the agricultural sector, the industrial
sector raises enough money that can be used to expand their capital.
Some of marketing information: Development of agricultural sectors leads to the
development of industrial sector because it acts as the market place where the
industrial sector collects information concerned with the real demand of the customers.
Industries which produce farm equipment such tractors, hoes and fertilizers normally do
marketing research so as to satisfy the requirements of the customers.
Economic policies: These are statements which direct the type of economy a nation
wants to build. They act as guidelines for any implementation of a particular plan. For
example, the development of the agricultural sector must be led by policies that will
support the implementation of that plan such as provision of free interest loans to
farmers, provision of farm equipments at subsidized prices, etc. By doing this the
agricultural sector develops. In turn the government will formulate policies that will
promote industries which depend on the agricultural sectors as their market. For
example, importation control of farm equipment from abroad so as to reduce
competition and creating reliable market to domestic agro-based industries.
10.
(a).
Explain four goals of economic development.

Economic development refers to an increase in per capita income associated with an

improvement in the indicators of the quality of life. Examples of indicators of the quality
of life include adult literacy, infant mortality, life expectancy and population per doctor.
The following are goals of economic development:-
Increasing per capita income: A rapid increase in per capita income is necessary in
order to raise the standard of living of the individuals. Low per capita income is an
indication of economic adversity. Per capita income can only be increased through
economic development.
High level of employment: There is a high level of unemployment in the under-
developed countries. About 30% to 40% of all individuals are not properly employed.
Additional employment opportunities can be created through proper development
projects.
Increase in national income: Another objective of economic development may be to
increase the national income. Various sectors of the economy like agriculture, industry,
etc can be developed and hence national income increases.
Equilibrium in the balance of payments: This is necessary for the economic
prosperity of any country. If there is disequilibrium in the balance of payments then
development activities will help to remove it.
Removal of inequality: Inequalities of wealth, income and opportunities are
undesirable because their presence makes the majority of the population to remain
poor. Economic development helps to provide basic facilities to the whole population.
(b).
Examine six benefits of economic growth in Tanzania.

Economic growth refers to a steady physical income from a country’s productive

forces which is identifiable by a sustained increase in real output of goods and services
or real national income over time. Economic growth is a quantitative concept and may
not necessarily be accompanied by an increase in the quality of life.
Below are benefits of economic growth:-
Higher standard of living: Economic growth contributes to a higher standard of living
provided it results to a higher real per capita income. This should imply that a greater
quantity of better commodities is made available to people to consume.
Reduction of poverty: Economic growth can help to reduce poverty. In many
developing countries a considerable proportion of people live in absolute poverty which
implies that they cannot satisfy their basic needs. Economic growth may provide a
greater access to commodities such as food, housing and clothing that enable the poor
to satisfy their basic needs more adequately.
Income redistribution: Economic growth can redistribute income without making
anyone worse off. Although economic growth doesn’t necessarily improve income
distribution in situations where it is taking place, it may be possible to change the
distribution of income so as to achieve greater equality without making anyone worse
off.
Increase in employment opportunities: The level of employment opportunities
increases due to full utilization of both natural and human resources. People get
chances to be employed in various economic sectors such as mining, fishing,
cultivation, trading, etc and hence unemployment problem declines.
Improvement of infrastructure: Lubricants of economic activities, i.e. roads and
communication are being improved due to economic growth. Infrastructures are
improved so as to facilitate the movement of goods and services from production to
consumption areas.
Increase in national income: National income is a measure of the total monetary value
of the flow of final goods and services arising from the productive activities of a nation in
any one year. So, when the economy grows, the quantity of goods and services
produced increase and when it comes to the measure of gross domestic product it will
be higher, therefore the national income increases.