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1. Describe Rostow's stages of economic growth.

W.W. Rostow, American economic historian described the transformation of countries from underdevelopment to development in terms of stages of growth.

  •  The traditional society
  • The transitional society
  • The take off stage
  • The mature stage and
  • The age of high mass consumption

The traditional society will be custom bound and tradition oriented. There will be economic backwardness. The poor countries of today are good examples of traditional society.In the transitional society, the conditions for take off stage will be established. During this stage, the force of customs and traditions will become less; there will be economic motivation, and there will be improvements in physical and social infrastructure.The take off stage refers to a situation where an economy transforms itself from a predominantly agricultural to a predominantly industrial society. The take off stage was made possible in some countries by leading sectors  like railways and defence. After the take off stage when the economy attains self sustaining growth, it enters the mature stage. During this stage, the government has to make some basic decisions. As there will be abundant resources and goods, it has to divide whether it has to use then for strengthening the nation into a strong and powerful state military or to use the resources for improving the welfare of the people. The final stage is the age of high mass consumption. During this period, people will consume all kinds of goods especially durable goods like cars on a mass scale.

2. Why is Keynes considered the father of new economics?

J. M. Keynes is considered the Father of New economics. During the 1920s and 1930s when the capitalist countries were affected by the Great depression marked by bad trade and mass unemployment, keynes suggested a greater role for government and a bold fiscal policy to tide over the crisis. The New Deal policy of America was greatly influenced by keynesian policy,

3. What is vicious circle of poverty ?

" The cycle of poverty has been defined as a phenomenon where poor families become trapped in poverty for at least three generations. These families have either limited or no resources.There are many disadvantages that collectively work in a circular process making it virtually impossible for individuals to break the cycle. This occurs when poor people do not have the resources necessary to get out of poverty, such as financial capital, education, or connections.In other words, poverty-stricken individuals experience disadvantages as a result of their poverty, which in turn increases their poverty. This would mean that the poor remain poor throughout their lives.This cycle has also been referred to as a "pattern" of behaviours and situations which cannot easily be changed. The poverty cycle is usually called "development trap" when it is applied to countries.Dr. Ruby K. Payne distinguishes between situational poverty, which can generally be traced to a specific incident within the lifetimes of the person or family members in poverty, and generational poverty, which is a cycle that passes from generation to generation, and goes on to argue that generational poverty has its own distinct culture and belief patterns. Economic growth can be seen as a virtuous circle. It might start with an exogenous factor like technological innovation. As people get familiar with the new technology, there could be learning curve effects and economies of scale. This could lead to reduced costs and improved production efficiencies.In a competitive market structure, this will probably result in lower average prices. As prices decrease, consumption could increase and aggregate output also. Increased levels of output lead to more learning and scale effects and a new cycle starts.However, pollution, natural resource depletion and other externalities associated with uncontrolled economic growth can turn the virtuous cycle into a vicious cycle below.Many developing countries are caught up in vicious cycle of poverty. Low level of income prevents savings, retards capital growth, hinders productivity growth, and keeps income low. Successful development may require taking steps to break up the chain at many points.Other points in poverty are also self- reinforcing. Poverty is accompanied by low levels of education, literacy and skill; these in turn prevent the adaptation to new and improved technologies and lead to rapid population growth. The vicious cycle of poverty is depicted as below:Overcoming the barriers of poverty often requires a concentrated effort on many fronts and a 'big-push' is required to break the 'vicious cycle' into 'virtuous circle'.If the country has stepped to invest more, improve health and education, develop labour skills, and curb population growth, she can break vicious cycle of poverty and stimulate a virtuous circle of rapid economic growth.

4.  Explain the concept 'economic development'.

Economic development is a normative concept that is  it applies in the context of people's sense of morality. The definition of economic development given by Michael Todaro is an increase in living standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice. The most accurate method of measuring development is the Human Development Index which takes into account the literacy rates & life expectancy which affect productivity and could lead to Economic Growth. It also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the conservation of the environment.It implies an increase in the per capita income of every citizen.

5. What are the forms of population pressures?

Population pressures take many forms. First, for example, they have rural development. This is some times refered to as disguised unemployment. that is there will be more number of people working on the farm that what is really necessary. The marginal productivity of the extra hands will be almost zero. Second, high birth rates create a large number of dependent children and lastly falling death rates with high birth rates will bring about a large increase in population.

6. Write a note on take-off stage.

The take-off stage refers to a situation where an economy transforms itself  from a predominantly agricultural to a predominantly industrial society. For an economy to attain the take off stage, it must make an annual investment equal to 20-25 % of GDP mobilized from its own savings. The take -off stage was made possible in some countries by leading sectors like railways and defence. After the take-off stage when the economy attains self sustaining growth, it enters the mature stage.

7. Why is India considered an underdeveloped economy?

An underdeveloped economy is defined as an economy which has got unexploited natural resources and unutilized human resources. In other words, it is an economy, having a potentiality to grow. An underdeveloped economy shows the following features:
(a) In the underdeveloped countries, natural resources remain unexploited and underexploited due to various reasons. Systematic utilisation of natural resources alone can lead to -economic development.
(b) An underdeveloped country is basically a primary producing country, engaging its factors of production to produce only raw materials and foodstuffs. The percentage of population engaged in. agricultural sector is very high (70% in Indian context) and a major part of total national income comes from agriculture and activities allied to agriculture (around 30% in India).
(c) In case of UDCs, the scarcity of capital is both the cause and effect of low productivity and underdevelopment. Due to scarcity of capital, a better technique of production cannot be adopted in India due to undeveloped technology total volume of production and productivity is low. Due to low production and productivity, level of income is less, and consequently, less amount of capital is available to adopt better technique of production. Thus, poverty is both the cause and the consequence.
(d) A chief feature of an UDC like India is its high population pressure. The high birth-rate and low death-rate are responsible for a break-neck rise in Indian population. At present, the annual growth rate of population according to 2001 census stands at 2.13%. This rapid growth of population stands as an obstacle in the smooth development of the economy.
(e) UDCs are characterized by low per capita income and grinding poverty scenario. In India, the per capita income is less than 1/3 of the per capita income of the developed western countries, and, according to the revised estimate of the Planning Commission about 50% of the total populations in India live below the poverty line.
(f) The underdeveloped countries are also characterized by widespread unemployment, underemployment and disguised unemployment. In India large numbers of people engaged in the agricultural sector are underemployed or disguise unemployed, apart from the large number of white- coloured unemployed, existing in the register of Employment Exchanges.
(g) The underdeveloped economies are also backward in the field of human resources. In these countries, the quality of people as productive agent is very low. There is low labour efficiency, lack of entrepreneurship and economic ignorance. People being illiterate are guided by blind beliefs, customs and traditions. People become fatalists and believe that man's fortune is decided by fate and not by one's own efforts.
(h) In these economies, there is a lack of infrastructural facilities like transport, banking, health, power, education and information technology. People also adopt an outdated technique of production which results in low productivity.
India as ah underdeveloped economy is characterized by abundant, but unexploited natural resources, a high population growth rate, a slow rate of capital formation, an outdated technique of production, and a low standard of living, accompanied by continuous and sustained efforts to raise it through a proper utilisation of available natural, human, financial and entrepreneurial resources.

8. Explain the role of the state in economic development.

The state plays an important role in the economic development of nations. Japan, after 1870 and soviet Russia after world war I are good examples. But the economic development of the U.K and the U.S.A took place under a system of market economy and laissez faire policy. The state has to play the role of an entreprenure in the underdeveloped countries. Through Five year, the state has been making attempts to achieve the goals of increasing economic growth, rapid industrialization, expansion of employment opportunities and reduction of inequalities of income and wealth. The government plays a very big role in the field of social services like education and health. Investment in education and health promote human capital formation, which is as important as physical capital formation. Education and health increase productivity of labour. If development is left to market forces, there will be not be balanced regional development. So the government formulates policies and programmes in such a way that there is a balanced regional development. And the state has to regulate and control monopolies. Thus, the state has to play a dominant role in economic development.

 

9. State two ways in which the government can promote economic development ?
     a) The government of any country can promote economic development in the following two ways necessary social and economic overheads .

 

     b) By taking adequate steps for establishing Social justice .

 

10. What is the Laissez faire doctrine ?
      During the 19 th centuary it was believed that the state or the government should not interview in the economic activities within a country .This was known as the doctrine of laissez faire .

 

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