Growth and Development Economics Questions and Answers

Answer: D

That factor prices are flexible in the long run is not an assumption of Harrod's model. Harrod assumes a constant desired capital-output ratio, a constant saving ratio, and a labour force that grows at a given exogenous rate, and the knife-edge instability arises because the factors are not substitutable and so prices cannot adjust.

Options A, B and C are assumptions of the model. Flexible factor prices come from the neoclassical growth model of Solow, which removes the instability.

Answer: B

Growth that gives broad-based benefits and equality of opportunity to all is called inclusive growth, the theme of the Eleventh Five Year Plan, 'Towards Faster and More Inclusive Growth'.

Faster growth is only a matter of speed, exclusive growth benefits only some groups, and sustained growth means growth that is kept up over a long period, so options A, C and D do not describe broad-based benefits.

The Eleventh Plan wanted to see the benefits of growth reach the poor, the backward regions, women and minorities, as the target for the faster growth of 9 per cent was set with a target for poverty reduction.

Answer: B

In Joan Robinson's growth model, capital accumulation depends on the relation between profits and wages and on labour productivity, since the profit share determines the funds for investment, and the productivity of labour determines the output per man. This is option B.

The saving-income ratio, the profit-income ratio with the productivity of capital and the saving-investment ratio are other possible determinants, but they are not what her model uses as the basis of accumulation.

Answer: C

In Hicks's classification, neutral technical progress is capital augmenting and labour augmenting at the same time, so that the capital-labour ratio rises with no change in the relative shares of factors. Hicks and Harrod give different forms of neutrality; here the key is that both factors are augmented.

Options A and B each name a single factor, which fits a biased form of progress, and option D describes only the efficiency of labour, so they are not the Hicksian definition.

Answer: D

In the dual gap model (Chenery and Strout), the saving gap and the foreign exchange gap are filled by foreign aid: the gap between investment and domestic saving and the gap between imports and exports are bridged by inflows from abroad.

Raising the saving rate or promoting exports closes only one of the gaps, and a steady growth rate is not a means of filling a gap, so options A, B and C are wrong.

Answer: B

The concept of 'learning by doing' was given by Kenneth Arrow (1962), who held that productivity rises with experience in production, as workers and firms learn from the work they do. It became a base of endogenous growth theory.

J.R. Hicks is known for neutral technical progress, Joan Robinson for her growth model, and Nicholas Kaldor for the technical progress function, so options A, C and D are wrong.

Answer: C

The concept of human capital stands for the human resources gainfully employed in productive activities, since people add to production through their skills, education and health.

The total human resources and the total population include those who are not engaged in productive work, so options A and B are too wide, and 'all of the above' is wrong.

The idea comes from Schultz and Becker, who treated spending on education, training and health as an investment that raises the productivity of workers in the same way as physical capital.

Answer: C

The keyed answer is the equilibrium between savings and investment. In the Harrod-Domar model the economy grows steadily only when planned saving is just matched by planned investment, which fixes the warranted rate of growth as the saving ratio divided by the capital output ratio. Option A describes the balance between the demand effect of investment and the capacity it creates, which is the way Domar put the problem, but the key takes the saving and investment balance as the base of the model. Option B is not the condition of the model, and option D is not correct because option C holds, so the keyed answer is option C.

Answer: A

The Human Development Index is built with reference to life expectancy at birth and real GDP per capita, statements I and II, option A, along with a measure of education. Infant mortality and morbidity are indicators of health and are not the components of the index, which uses life expectancy as its health measure. So options B, C and D, which include statements III or IV, are wrong, and the keyed answer is option A.

Answer: D

The doctrine of unbalanced growth was propounded by Hirschman and Singer, statements I and III, option D. Albert Hirschman argued in The Strategy of Economic Development that development proceeds by a chain of imbalances in which investment in one sector creates pressures and opportunities in others, and Hans Singer also put forward the case for unbalanced growth. Robert Solow is known for the neoclassical growth model, and Ragnar Nurkse for the balanced growth doctrine, so options A, B and C, which include them, are wrong.