Growth and Development Economics Questions and Answers

Answer: C

The correct matching is a-ii, b-i, c-iv, d-iii.

• Stages of economic growth: W.W. Rostow (1960), from traditional society to the age of high mass consumption.
• Unlimited supplies of labour: Arthur Lewis (1954), the dual-economy model.
• The Big Push: Rosenstein-Rodan (1943), on industrialising Eastern Europe.
• Unbalanced growth: A.O. Hirschman (1958), The Strategy of Economic Development.

Each of the other options pairs at least one theory with the wrong economist, for example giving the Big Push to Lewis or the stages of growth to Rosenstein-Rodan.

Answer: B

ICOR stands for Incremental Capital Output Ratio.

The ICOR is the amount of additional capital needed to produce one additional unit of output: \(ICOR = \Delta K / \Delta Y\). It is used in growth planning (as in the Harrod-Domar model) to link the investment rate to the growth rate; with an ICOR of 4, an investment rate of 32 per cent of GDP supports growth of about 8 per cent.

'International Credit Output Ratio', 'Incremental Capital Output Range' and 'Indian Capital Output Rules' are invented expansions. The near miss changes only the last word, ratio to range.

Answer: B

Myrdal's analysis rests on Backwash effects and spread effects.

In Economic Theory and Under-Developed Regions (1957), Gunnar Myrdal set out the theory of circular and cumulative causation. Growth in an already prosperous region or country draws capital, skilled labour and trade away from poorer ones (backwash effects), while also creating some demand and diffusion of technology that benefits them (spread effects). Because backwash effects usually dominate, inequalities between regions and between nations tend to widen unless policy intervenes.

Export and import potential, income inequality and supply and demand forces enter the analysis, but the framework itself is built on backwash and spread effects.

Answer: C

Higgins called this Technical (technological) dualism.

Benjamin Higgins argued that an underdeveloped economy has two sectors using different production functions. The advanced (industrial, plantation, mining) sector uses capital-intensive techniques with fixed technical coefficients, so it absorbs little labour. The traditional (agricultural) sector uses labour-intensive techniques with variable coefficients. Population growth thus produces disguised unemployment in the traditional sector, and the gap between the two sectors persists.

Social dualism is J.H. Boeke's concept of a clash between imported and indigenous social systems, and financial dualism refers to organised and unorganised money markets. 'Credit dualism' is not Higgins's term.

Answer: D

The Physical Quality of Life Index was developed by M.D. Morris.

Morris David Morris devised the PQLI in the 1970s for the Overseas Development Council, publishing it in Measuring the Condition of the World's Poor (1979). It combines three indicators, literacy, infant mortality and life expectancy at age one, each scaled from 0 to 100, into a single index, as an alternative to GNP per head for measuring human welfare.

Simon Kuznets is known for national income accounting and the inverted-U hypothesis, Ragnar Nurkse for the vicious circle of poverty and balanced growth, and Arthur Lewis for the dual-sector model of unlimited labour supply.

Answer: B

The Gini coefficient measures the level of relative income inequality.

It is derived from the Lorenz curve: the ratio of the area between the line of perfect equality and the Lorenz curve to the whole area below the line of equality. It ranges from 0, when everyone has the same income, to 1, when one person has all of it. Because it compares shares, it measures relative inequality, unaffected by the overall level of income.

It does not measure poverty (a country can be equal and poor), disguised unemployment or growth. Those need head-count ratios, labour studies and national income figures respectively.

Answer: D

The correct code is a-iii, b-i, c-iv, d-ii.

Amartya Sen won the 1998 prize for contributions to welfare economics. Richard Thaler won in 2017 for behavioural economics. Paul Krugman won in 2008 for his analysis of trade patterns and the location of economic activity, that is, international trade. Robert Lucas won in 1995 for rational expectations; the paper pairs him with development economics, reflecting his well-known work on the mechanics of economic development and growth.

Once Sen, Thaler and Krugman are placed, only the last code fits; the others put Sen with behavioural or trade economics, or Thaler with development.

Answer: D

Leibenstein called them growth agents.

In his critical minimum effort thesis, Harvey Leibenstein argued that an underdeveloped economy needs a big enough initial stimulus to escape the low-income equilibrium. He distinguished growth agents (such as entrepreneurs, investors and innovators, and the activities that expand output) from zero-sum and negative-sum activities that do not raise national income.

Incentives, capital and 'positive factors' are part of the discussion, but the named concept for the favourable forces is growth agents.

Answer: B

A Hicks-neutral invention raises the marginal productivities of labour and capital in the same proportion.

Hicks classified technical progress by its effect on the ratio of the marginal products of capital and labour at a given capital-labour ratio. If both marginal products rise in the same proportion, their ratio, and hence relative factor shares at given factor proportions, is unchanged: the invention is neutral. If it raises the marginal product of capital more, it is labour-saving, and vice versa.

Equal growth in saving and investment, balanced sectoral development or no effect on the economy are not Hicks's definition.

Answer: B

The capital-turnover criterion is associated with J.J. Polak and N.S. Buchanan (printed 'Buchanon').

The criterion ranks investment projects by their capital-turnover ratio, the output produced per unit of capital (the inverse of the capital-output ratio). In a capital-scarce country, projects with a quick and high turnover of capital should be preferred, because they yield the most output from scarce capital. Polak and Buchanan advanced this rule in the 1940s.

Kaldor and Rosenstein-Rodan, Nurkse and Hirschman, and Robinson and Rostow are associated with other development ideas, such as the big push, balanced and unbalanced growth and the stages of growth.