is full employment of land, labor, and machinery. (7) All machinery are alike and the ratio of labour to machinery can be easily varied, hence there is perfect malleability of machinery. (8) There is perfect substitutability between capital goods, consumer goods, and any given stock of machines, no matter how old or new they are, a certain percentage gets replaced every year. Meade calls this phenomenon the assumption of depreciation by evaporation. Determinants of the rate of economic growth According to the assumptions given above, the net output produced by the economy depends on the following four things: (1) The amount of existing stock of machines in the economy (2) The amount of labor for the production process (3) The amount of land or natural resources available for productive use in the economy (4) The technological progress in the economy is expected to improve over time. Hence the production function for the economy is given by: Where: net output or net real income existing stock of machines the amount of labour amount of land time Time is accounted for because with the passage of time the production would increase without any increase in , , or . An increase in with time (denoted by ) can take place in three ways. First, the machine stockpile may increase if the community starts saving part of its income thereby accumulating real capital. If the increase in the stock of capital taking place in one year is given by , the output would increase by where denotes the marginal net physical product of a machine. Secondly, , the working population, may grow. If denotes an increase in the amount of labour productivity employed in a single year and measures the marginal product of labour, the output will increase in that year by . Finally, the net output can increase if there is an increase in technical progress (hence enabling increased efficiency). The total increase in net output due to technical progress is given by . Hence the total increase in net output in one year is the sum of the three influences. Combining this we get the equation: Dividing both sides by , we get Or, (Equation 1) Here is the annual proportionate rate of growth of output, the annual proportionate rate of growth of machinery stock, the annual proportionate rate of growth of productively employed labour and the annual proportionate rate of