VICIOUS CIRCLE OF POVERTY

CONCEPT OF POVERTY

&

VICIOUS CIRCLE OF POVERTY

Meaning of poverty:-

In simple terms, poverty is not having enough money or access to resources to enjoy a decent standard of living; be that the lack of access to healthcare, education or sanitation facilities, etc.

The simplest definition of being poor is ‘being unable to subsistence’ that is, being unable to eat, drink, have shelter and clothing.

Types of poverty:-

Primary poverty means not having enough money to meet basic needs, it can also be considered as ‘living below the poverty line.’

Secondary poverty is when people earn just enough money to afford the necessities but spend part of it on “coping mechanisms” to deal with financial and work-related stress (high risk and/or difficult working conditions due to abuse and long hours) and therefore end up struggling to make ends meet.

Absolute poverty is when we consider every poor person as equal. The general definition of poverty which is valid at all times and for all economies is called absolute poverty.

Relative poverty is the condition in which people lack the minimum amount of income needed in order to maintain the average standard of living in the society in which they live. Relative poverty is considered the easiest way to measure the level of poverty in an individual country. Relative poverty is sometimes described as “relative deprivation” because the people falling under this category are not living in total poverty, but they are not enjoying the same standard of life as everyone else in the country. It can be TV, internet, clean clothes, a safe home (a healthy environment, free from abuse or neglect), or even education. Relative poverty can also be permanent, meaning that certain families have absolutely no chance of enjoying the same standards of living as other people in the same society currently have access to. They are basically “trapped” in a low relative income box.

Under the relative concept of poverty, a family (or an individual) is deemed to be poor if its level of income or consumption expenditure falls below a predetermined level. Then the income distribution of the population in different fractile groups is estimated and a comparison is made between the level of living of people in the bottom layer and the top layers of the population to assess the relative standard of poverty. The concept of relative poverty has received little attention. The concept of relative poverty is more suitable for developed countries while the absolute concept is relevant for the developing countries

In addition, the concept of poverty has two connotations, namely,

INDIVIDUALIZED POVERTY.-

The concept of individualized poverty is concerned with those poor individuals who are not able to incur even the minimum expenditure on most essential items viz., food, clothing and housing and

COLLECTIVE POVERTY.- Collective poverty referees to social systems.

The term virtuous circle and vicious circle refers to a complex chain of events that reinforce themselves through a feedback loop.

Virtuous circle refers to favourable result and vicious refers to detrimental result.

In other words:-

“A situation in which action and reaction intensify on other”

Different Economists gave different definitions of the vicious circle of poverty.

“The main reason of vicious circle of poverty is the lack of capital formation.” 

                                                                                     -According to Nurkse

“Vicious circle of poverty takes place due to the small size of the market.”

                                                                            -According to Kindleberger

“A nation is poor because it is poor”

Reason of poverty:-

1.First, poverty is due to the differences in the pattern of resource ownership leading to unequal distribution of income. The poor only have very limited resources with low quality.

2. Secondly, poverty emerged as a result of differences in the quality of human resources. Low quality of human resources that will lead to low productivity that would result in low levels of wages. The low quality of human resources caused partly by a lack of education, the fate of the less fortunate, the existence of discrimination and heredity.

3.Third, poverty appears as a result of differences in access to capital. This can be explained by figure-1 which is given below.

The theory that further clarifies the phenomena of poverty and contributing factors is the theory of “cycle of poverty” (vicious circle of poverty) is expressed by Nurkse. Which has significance, in theory, is the "State is poor because he is poor" (poor in a poor country is poor because it is poor).

1. At the macro level, poverty arises because of the inequality of resource ownership patterns that cause unequal income distribution, poor people only have the resources in a limited number and low quality;

2. Poverty arising from differences in the quality of human resources due to the quality of human resources means low productivity is also low, wages were low;

3. Poverty exists due to differences in access and equity. The three causes of poverty that leads to a vicious cycle of poverty.

The process begins with the poverty of the retardation/underdevelopment, and lack of capital market imperfections. These factors affected the low productivity of the total population. Low productivity results in lower incomes of the poor receive. The low income will have implications for the low savings and investment trend lower. Subsequent impact, low investment will further aggravate the economy and result in socioeconomic underdevelopment and backwardness of the community. Therefore, every effort should be concentrated on the fight against poverty "cut" the circle of poverty traps.

COMMON CITED CAUSES OF POVERTY IN INDIA

The vicious circle is classified in the three groups:-

1. Supply side of vicious circle
2. Demand side of the vicious circle
3. Vicious circle of market imperfection

SUPPLY SIDE:-

Supply-side of vicious circle indicates that in underdeveloped countries, productivity is so low that it is not enough for capital formation. According to Samuelson, “The backward nations cannot get their heads above water because their production is so low that they can spare nothing for capital formation by which their standard of living could be raised.”

In the words of Prof. Nurkse on the supply side there is a small capacity to save resulting from the low level of national income. The low real income is a reflection of low productivity, which in turn is due largely to the lack of capital. The lack of capital is a result of the small capacity to save and so the circle is complete.

LOW-INCOME → LOW SAVING → LOW INVESTMENT → LOW PRODUCTION → LOW INCOME

The supply side of the vicious circle can be illustrated with the help of a fig .1

It Reflects the UDCs are poor. In these countries, poverty refers to low real income. Real income remains low due to the low level of capital and capital is low because of low level of saving. The reason for low saving is a low level of income. Those, it becomes clear from the above analysis, that the main reason for the low level of poverty and income is the low level of saving. Consequently, investment is not possible in production channels. A man can save only when his real income exceeds consumption. Generally, in UDC, society is divided into two groups’ viz.; rich and poor.

In such countries, the majority of farmers are from poor groups. Their income is very low because they are engaged in subsistence farming. The methods of cultivation are old and unskilled. The productivity of labor is low due to unskilled labor, disguised unemployment, and immobility of labor. Under such a situation, a huge chunk of national product is consumed on consumption purposes. In this way, they lack saving, investment and so the capital formation.

Although, the rich group of the society is in a position to save. But, they spend their savings on luxurious goods instead of saving. They gave preference to foreign products. Thus, their demand does not enlarge the size of the market. Basically, in an economy, investment does not depend only on saving, but also on the ability to invest and willingness to invest. These countries lack in investment facilities due to the low level of demand.

The quantity of investment depends on able entrepreneurs. Able entrepreneurs have to take risks and put hard work to set up a new industry. The social atmosphere of the rich class is such that they do not dare to take risks. They prefer to put some laborers on work. Moreover, in UDCs, there exist a medium-income group that prefer to work in trade, services, etc. instead of capital formation. The main reasons responsible for this are lack of capital for investment in industries, lack of industrial finance, lack of skilled labor, lack of transportation and social overhead, etc.

Demand Side of Vicious Circle:-According to Prof. Nurkse, “On the demand side, the inducement of invest may he low because of the small purchasing power of the people, which is due to the small real income, which is again due to loco productivity. The level of productivity, however, is the result of the small amount of capital used in production which in turn may be caused or at least partly caused by small inducement to invest.

LOW INCOME → LOW DEMAND LOW INVESTMENT → LOW PRODUCTIVITY → LOW INCOME

Fig. 2 shows that low income leads to low demand which in turn results in low investment and so the low level of capital which again leads to low productivity and low income. The main reason for the poverty in these countries is the low level of demand. Consequently, the size of the market remains low. The small size of the market becomes a hurdle in the path of inducement to invest.

Thus, the investors do not establish industries on large scale and productivity remains low and so the income. In order to prove this, Prof. Nurkse has cited many examples. For instance, an entrepreneur will not establish a modern shoe factory in a country where the people are poverty-ridden and unable to purchase shoes. Similarly, the iron and steel industry in Chile will produce so much iron and steel in three hours that the entire demand of the country can be fulfilled. Thus, according to Nurkse, “In underdeveloped countries, on-demand side, low purchasing power of the people results in low productivity.”

VICIOUS CIRCLE OF MARKET IMPERFECTIONS:-Meier and Baldwin have described a third vicious circle based on capital deficiency due to market imperfections. In underdeveloped countries, resources are underdeveloped and people are economically backward. Existence of market imperfections prevent optimum allocation and utilization of natural resources and the result is under development and this, in turn, leads to economic backwardness.

The development of natural resources depends upon the character of human resources. But due to lack of skill and low level of knowledge, natural resources will remain unutilized, under-utilized and miss-utilized. In the words of Meier and Baldwin, “Underdeveloped resources are, therefore, both a consequence and cause of the backward people… The more economically backward are the people, the less developed will be natural resources, lesser the development of natural resources more the people are economically backward.” The vicious circle caused by Market Imperfections is shown as under.

The vicious circle of poverty is a result of the various vicious circles which were on the sides of the supply of and demand for capital. As a result capital formation remains low productivity and low real incomes. Thus, the country is caught in vicious circles of poverty which are mutually aggravating and it is very difficult to break them.

*The source of the information is books and the internet.

*image source-India tv

Marx theory of economics growth

Marxist Theory

Marx is regarded as the father of history (scientific socialism) who prophesied the decline of capitalism and the advent of socialism. He is considered a great thinker of history. His famous book ‘Das Kapital’ is known as the Bible of socialism (1867). He presented the process of growth and collapse of the capitalist economy. He expected capitalistic change to break down because of sociological reasons and not due to economic stagnation and only after a very high degree of development is attained.

“Marxism is a religion. To an orthodox Marxist, an opponent is not merely in error but in sin”.

-Prof. Schumpeter wrote,

According to Marx, human civilization has manifested itself in a series of organizational structures, each determined by its primary mode of production, particularly the division of labor that dominates in each stage. In Marxian theory, production means the generation of value. Thus economic development is the process of more value-generating, and labor generates value.

Marxian Economic theory of growth is based on certain Assumptions:-

1. There are two principal classes in society. (a)Bourgeoisie (b) Proletariat. 

2. Wages of the workers are determined at a subsistence level of living. 

3. Labour theory of value holds good. Thus labor is the main source of value generation. 

4. Factors of production are owned by capitalists. 

5. Capital is of two types: (a) constant capital and (b) variable capital. 

6. Capitalists exploit the workers. 

7. Labour is homogenous and perfectly mobile. 

8. Perfect competition in the economy. 

9. National income is distributed in terms of wages and profits.

Marks stage of economic growth is classified into five stages which are as follows

                             

STAGE 1 – PRIMITIVE COMMUNISM

This is the first stage in which men performed the same economic functions i.e. – hunter-gathering. They worked together in order to survive. There was no private property and there were no classes existing in society. Eventually, the most successful hunter-gatherers gained power and control over the others and this leads to the next stage which is imperialism.

STAGE 2 – IMPERIALISM

The strong man ruled. He began by owning all the land but when threatened by outsiders, he would grant land to others in return for military service. A new land-owning aristocracy was therefore created. In this stage, people start having private property rights.

STAGE 3 – FEUDALISM

The land was owned by the aristocracy who exploited the peasantry who worked it. There was a surplus of food which the aristocracy sold to others creating a class of merchants and capitalists who wanted to share political power.

STAGE 4 – CAPITALISM

The wealthy merchants and factory owners (bourgeoisie) obtained political power and exploited the workers (proletariat).In such a society, the proletariat is fooled into believing that she/he is free because she/he is paid for his/her labor. In fact, the transformation of labor into an abstract quantity that can be bought and sold on the market leads to the exploitation of the proletariat, benefitting a small percentage of the population in control of the capital. The working class thus experiences alienation since the members of this class feel they are not in control of the forces driving them into a given job. The reason for this situation is that someone else owns the means of production, which are treated as private property. As the proletariat became politically aware they would rise up and overthrow the bourgeois government. All this because of the eventual growth of commerce (and of human populations), feudal society began to accumulate capital, which, along with the increased debt incurred by the aristocracy, eventually led to the English Revolution of 1640 and the French Revolution of 1789 both of which opened the way for the establishment of a society structured around commodities and profit (i.e. capitalism). Human society's entrance into capitalism occurred because of a transformation in the understanding of exchange value and labor.

STAGE 5 – SOCIALISM OR COMMUNISM

There would be a dictatorship of the proletariat as workers’ organizations re-distributed food, goods, and services fairly according to need, and profits were shared by all. The middle classes would come to understand that equality was superior to private ownership. Everyone would join together for the common good. Money and government would no longer be needed and society would be classless. As all countries reached this stage the world would become stateless and competition and wars would cease and more capital accumulation and technological improvement. At the start, growth under capitalism, generation of value, and accumulation of capital underwent at a high rate. After reaching its peak, there is a concentration of capital associated with a falling rate of profit. In turn, it reduces the rate of investment and as such a rate of economic growth. Unemployment increases. Class conflicts increase. Labor conflicts start and there is a class revolt. Ultimately, there is a downfall of capitalism and the rise of socialism.

Gist Of Theory 

STAGES OF HISTORY AND CLASS CONFLICT AT EACH STAGE
STAGE	OPPRESSING CLASS	OPPRESSED CLASS
Primitive communism	No classes	No conflict
Slavery	Slave owners	Slaves
Feudalism	Landowners	Serfs
Capitalism	Bourgeoisie	Proletariat
Socialism	State managers	Workers
Communism	No classes	No conflict

                    

Source:

*Note: Some content in this article is taken from different sources like textbooks, the internet, articles, research papers, etc. we do not claim any copyright on this content. this is used only for educational purposes.

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UGC-NET ECONOMICS JULY-2018

1. Which of the following will be true for both monopoly and monopolistic competition in the short run?

(1) Price is greater than marginal revenue.

(2) Price is equal to marginal revenue.

(3) Price is equal to marginal cost.

(4) Price is equal to average cost.

2. Consider the following matrix which describes the respective strategies and the corresponding pay-offs of firms A and B operating in a duopoly:

Which of the following statement(s) is/are true for the above game?

Select the correct answer from the codes given below:

(a) Firm A has no dominant strategy.

(b) Firm B has a dominant strategy.

(c) The game has a Nash equilibrium.

(d) Neither Firm A nor Firm B has a dominant strategy.

Code:

(1) (a), (c)

(2) (b), (c)

(3) (d) Only

(4) (a), (b) and (c)

3. In the context of oligopoly, consider the following statements:

(a) Cournot’s equilibrium is a Nash equilibrium.

(b) Stackelberg equilibrium is a Nash equilibrium.

Select the correct answer from the code given below:

(1) Only (a)

(2) Only (b)

(3) Both (a) and (b)

(4) Neither (a) nor (b)

4. Match List – I with List-II and point out the correct answer from the codes below:

List - I (Concept)	List-II (Economist)
(a) Profit as a dynamic surplus (b) Profit as a reward for innovation (c) Profit as a reward for uncertainty bearing (d) Profit arises due to monopoly power enjoyed by the producers	(i) J. Schumpeter (ii) M. Kalecki (iii) F.H. Knight (iv) J.B. Clark

Code:

      (a) (b) (c) (d)

(1) (ii) (i) (iii) (iv)

(2) (iv) (i) (iii) (ii)

(3) (iv) (ii) (iii) (i)

(4) (iii) (iv) (ii) (i)

5. When the marginal cost is equal to average cost, the slope of the average cost is:

(1) positive

(2) negative

(3) zero

(4) infinite

6. For the function Q=A ⋅ K^α ⋅ L^β, which of the following is correct?

(1) The degree of homogeneity is 1

(2) The elasticity of substitution is equal to α+β

(3) Output elasticity with respect to capital is α

(4) The marginal product of a factor=Average product of the factor

7. When information asymmetry is observed after an agreement is obtained between individuals, it is called:

(1) Signaling

(2) Moral hazard

(3) None of the above

(4) Both (1) and (2) above

8. In the given diagram, after the price change, the price line shifts from PQ to PQ’. And consumer comes to equilibrium at point B instead of point A. Then what is true for potatoes?

(1) It is a normal good.

(2) It is an inferior good.

(3) It is a Giffen good.

(4) Nothing can be said about the nature of the good.

9. Which amongst the following is a correct description of inverse demand function?

(1) p=f (D)

(2) D=f (p)

(3) D = f(1/p)

(4) p = f(D, 1/y)

Where p=price, D=demand, and y=income.

10. The first fundamental Theorem of Welfare Economics requires:

(1) that there be an efficient market for every commodity.

(2) that the economy operates at some point on the utility possibility curve.

(3) producers and consumers to be price takers.

(4) All of the above.

11. The Theory in which the trade cycle is generated due to excess of actual over the desired investment has been given by who amongst the following?

(1) R.G. Hawtry

(2) F. Hayek

(3) P. Samuelson

(4) J. Schumpeter

12. Consider the following statements:

(a) ‘Liquidity trap ‘is a situation when people prefer to hold money rather than investing it.

(b) ‘Liquidity preference’ is the situation when people prefer to invest money rather than hold it.

(c) ‘Liquidity crunch’ is a situation of short supply of money in the money market.

(d) ‘Credit crunch’ is a situation of short supply of money in the loan market.

Select the correct statements using the code given below:

(1) (a), (b) and (d)

(2) (a), (c) and (d)

(3) (b), (c) and (d)

(4) (a), (b) and (c)

13. ‘Menu costs’ in relation to inflation refers to:

(1) Cost of revaluing the currency.

(2) Cost of altering price lists.

(3) Cost of the maintenance of monetary base.

(4) Cost of finding better rates of return.

14. According to M. Friedman, Quantity Theory of Money is the theory of:

(1) Value of money

(2) Price determination

(3) Nominal income

(4) Demand for money

15. Gilt-edged market means:

(1) Bullion Market

(2) The market of pure metals

(3) The market of government securities

(4) Market of commodities

16. Which of the following is likely to be most inflationary in its impact?

(1) Repayment of public debt

(2) Borrowings from the public to finance a budget deficit

(3) Borrowings from banks to finance a budget deficit

(4) Creating new money to finance a budget deficit

17. Consider the following statements regarding the Marginal Standing Facility (MSF).

(a) MSF is on the line of the existing LAF and is part of it.

(b) MSF is a costlier route than Repo.

(c) MSF functions as the last resort for banks to borrow short term funds.

(d) MSF is linked to the net demand and time liabilities of the Banks.

Choose the correct code given below.

(1) (b), (c) and (d)

(2) (a), (b) and (c)

(3) (a), (c) and (d)

(4) (a), (b), (c) and (d)

18. “The absorption approach” of analyzing the balance of payments was formulated by: 

(1) M. Friedman

(2) Marshall and Lerner

(3) Sydney Alexander

(4) Haberler

19. Which amongst the following is not correctly matched with regard to the balance of payments account?

Item	Nature
(1) Import of goods and services (2) Receipt of transfer payments (3) Direct investment receipts (4) Portfolio investment redemption	Debit in the current account Credit in the current account Credit in the capital account Debit in the current account

20. Prebisch – singer hypothesis relates to:

(1) Balance of payments problem of developing countries.

(2) Terms of trade in developing countries.

(3) Prevalency of poverty among developing countries.

(4) Inequality of income in developing countries.

21. Which of the following statement about India’s balance of payments is not correct?

(1) If a foreign citizen deposits some money in a bank in India, the accounts regard this as a credit.

(2) The current account balance shows only the balance for the trade in goods and services combined.

(3) Allowing for errors and omissions, the accounts always balance.

(4) If the country’s reserves of foreign currencies increase then there is a minus sign for this entry.

22. Let elasticity of demand for exports for a certain country be ex and elasticity of demand for imports be em. Assume that the country devalues its currency. Its balance of payments will almost certainly show improvement if:

(1) ex + em > 1

(2) ex + em < 1

(3) ex + em=1

(4) ex = em =1

23. Which of the following would cause Rupee to depreciate against U.S. Dollar, other things being equal?

(1) A rise in interest rates in India.

(2) A fall in incomes in the U.S.A.

(3) An expected rise in the external value of the rupee.

(4) An increased flow of foreign investment into India.

24. According to Mercantilists, trade is a:

(1) Positive sum game

(2) Infinite sum game

(3) Zero-sum game

(4) Negative sum game

25. There is incomplete specialization in production when the country faces:

(1) constant opportunity costs

(2) decreasing opportunity costs

(3) increasing opportunity costs

(4) indeterminate opportunity costs

26. Tax buoyancy is expressed as:

(1) 1

(2) 2

(3) 3

(4) 4

27. Income tax is generally based on the principle of:

(1) Benefit received principle

(2) Ability to pay principle

(3) Willingness to pay principle

(4) None of these

28. Which method can help in obtaining a welfare improvement if externalities exist?

(1) Regulation

(2) Assigning property rights and permitting bargaining

(3) Pigovian taxes

(4) All of the above

29. Which of the following is a capital receipt in the Government budget?

(1) Interest receipts on loans given by the Government to other parties.

(2) Dividend and profit of public enterprises.

(3) Borrowings of the government from the public.

(4) Property tax receipts.

30. Which amongst the following would be most effective in mitigating the effect of externalities?

(1) Fiscal policy

(2) Regulation of monopoly

(3) Active monetary policy

(4) Freeing the markets

31. The maximum social advantage is achieved when:

(1) Total Social Sacrifice=Total Social Benefits

(2) Marginal Social Sacrifice=Marginal Social Benefits

(3) Net Social Sacrifice=Net Social Benefits

(4) Average Social Sacrifice=Average Social Benefits

32. Statutory incidence of a tax deal with:

(1) the person(s) legally responsible for paying the tax.

(2) the amount of revenue left over after taxes.

(3) the amount of taxes paid after accounting for inflation

(4) the amount of tax revenue generated after a tax is levied.

33. The relationship described by the Expectations – Augmented Phillips curve is correct in which of the following?

(1) Only in the long run.

(2) Only in the short run.

(3) Both in the short run and in the long run.

(4) Neither in the short run nor in the long run.

34. Non Accelerating Inflation Rate of Unemployment (NAIRU) means:

(1) a rate of unemployment for which the change in the rate of inflation is zero.

(2) a rate of inflation which makes the rate of unemployment zero.

(3) a rate of inflation for which the change in the rate of unemployment is zero.

(4) a rate of unemployment which is equal to the rate of inflation.

35. New Keynesians use which of the following to explain price and wage stickyness?

(1) Staggered labor contracts

(2) Menu Costs

(3) Behavior-based on bounded rationality

(4) All of the above

36. Consider the following statements:

(a) Effective demand in a market is the demand for a product or service which occurs when purchasers are constrained in a different market.

(b) Notional demand is the demand that occurs when purchasers are not constrained in any market.

Which of the above statements is/are correct? Answer from the code below:

(1) Only (a) is correct

(2) Only (b) is correct

(3) Both (a) and (b) are correct

(4) Neither (a) nor (b) is correct

37. For the capitalist economy, the primary objective of New Classical Economics is to explain which of the following?

(1) Business cycle phenomenon

(2) Underemployment

(3) Wage – price rigidity

(4) Effectiveness of Government policy

38. Which of the following growth model(s) assume(s) Neutral Technical Progress?

(1) Harrod model

(2) Solow model

(3) Both (1) and (2)

(4) Neither (1) nor (2)

39. In an economy, the GDP deflator is found to be 110 for the current year. If the GDP has registered an annual growth rate of 15 percent in the same year, then, the rate of growths of real GDP will be:

(1) 5%

(2) 1.5%

(3) 25%

(4) 2.5%

40. What is the nature of equilibrium in the IS-LM model?

(1) Stock equilibrium

(2) Flow equilibrium

(3) Stock and flow equilibrium

(4) Oscillating equilibrium

41. If marginal propensity to import is 0.1 and the marginal propensity to consume is 0.7, the value of the income multiplier will be:

(1) 1.25

(2) 2.33

(3) 2.5

(4) 3.33

42. According to the neoclassical theory of distribution, constancy in the wage share in national income would come about only when the elasticity of factor substitution:

(1) is less than one

(2) is equal to one

(3) is zero

(4) is greater than one

43. Which amongst the following is not a feature of J.E. Meade’s model?

(1) Perfect competition prevails.

(2) The economy produces consumer goods and producer goods.

(3) Perfect substitution is possible between consumption and capital goods.

(4) It examines the relationship between the growth rate of population and the growth rate of savings.

44. Consider the following production function forms with a technical progress term A(t).

(a) Q=f (K_t, A(t) ⋅ L_t)

(b) Q=f (A(t) ⋅ K_t, L_t)

(c) Q=A(t) f (K_t, L_t)

Of the above, which production function, with labor augmenting technology will keep the distribution of output between labor and capital as constant? Answer from the code below:

(1) Only (a)

(2) Both (a) and (b)

(3) Only (c)

(4) Both (a) and (c)

45. Which of the following statements about the AK model (Y=AK) of growth is false?

(1) This is a part of endogenous growth theories.

(2) The model assumes that an increase in the physical stock of capital will shift the production function upwards.

(3) The model assumes diminishing returns to capital.

(4) The model suggests that if the level of investment is higher than depreciation, there would be sustained growth.

46. Which of the following is not a correct feature for the absolute convergence to hold good?

(1) The same population growth rate

(2) Same savings propensity

(3) Same capital-labor ratio

(4) Different capital-labor ratio

47. In Solow’s growth model, the output per capita is a function of:

(1) Labour – Output ratio

(2) Capital – Output ratio

(3) Technical progress

(4) Capital – Labour ratio

48. Dusenberry was of the opinion that less developed countries will have a serious and adverse effect on their balance of payments due to:

(1) demonstration effect

(2) multiplier effect

(3) backwash effect

(4) spread effect

49. Leibenstein in his critical minimum effort thesis treats the population as a factor that is:

(1) Income-generating

(2) Investment – inducing

(3) Income – depressing

(4) Market – expanding

50. ‘Workers must own the capital to which their savings has given rise.’ This is an important assumption of the growth model, developed by:

(1) L. Pasinetti

(2) N. Kaldor

(3) R. Solow

(4) J.E. Meade

**TO BE CONTINUED........ 

ECONOMIC INTEGRATION

Meaning: 

Economic integration is a process whereby countries in a geographical region (location) cooperate with one another to reduce or eliminate barriers to the international flow of products, people, or capital. It can be of served forms with different degrees of integration.

ACCORDING TO SALVATORE’S

“Commercial policy of discriminatively reducing or eliminating trade barriers only among the nations joining together”

Note:

Therefore it refers to a decision or process whereby two or more countries combine into a larger economic region by removing discontinuities and discriminations existing along national frontiers, and by establishing certain elements of cooperation between them.

ON THE BASICS OF COOPERATION WE HAVE THE FOLLOWING TYPES OF ECONOMIC INTEGRATIONS.

1. Preferential trading system/Preferential trade arrangements (PTA).
2. Free trade area (FTA).
3. Customs union (CU).
4. Common market.
5. Economic Union (EU).

1. PREFERENTIAL TRADING SYSTEM/PREFERENTIAL TRADE ARRANGEMENTS (PTA)

1. It was the earliest form of economic integration Among the 48 Commonwealth nations during the British Empire (1932).
2. It is the loosest form of EI which provides lower barriers to trade among the participating nations than to trade with non-member nations.
3. It ended after the formation of GATT rules.

2. FREE TRADE AREA (FTA).

1. It is a loose form of EI wherein the member countries fully or partially abolish trade barriers and tariffs on most (if not all) goods traded among them but retain their own tariff, trade barriers, and commercial policies with non-member countries.
2. It is simply based on inter-area trade.
3. Examples of this: are EFTA, LAFTA, and LAIA.

3. CUSTOM UNION (CU).

1. In this EI the participating counties adopt a common external policy and abolish all tariffs and trade barriers among themselves.
2. In CU all member nations act as a unit in their trade relations with non-member countries.
3. Example of this: European common market/European Union formed in 1957/ The European Community (EC).

4. COMMON MARKET.

1. Besides allowing for free trade and common external policy for non-member, It is a single unified common market area among nations in which there goods, services, and factor market are integrated.
2. The EC is also a common market.
3. EU achieved the status of a common market at the beginning of 1993.

5. ECONOMIC UNION (EU).

1. The economic union is the highest and most advanced form of economic integration, besides the integration of product and factor markets as in the common market; it involves the harmonization of monetary, fiscal, and other policies such as exchange rate, transportation, industrial, and social policies.
2. Example:-European economic the community transformed into an economic union called the European Union in 1991.