'A country is poor, because it is poor' this statement is of

Question

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Correct — option (2). The sentence is Ragnar Nurkse's, and it is the compressed statement of his account of the vicious circle of poverty; the paper prints the name as 'Ragnar Nurks', while the economist's name is usually spelt Nurkse. Nurkse's argument, set out in his work on capital formation in underdeveloped countries, is that poverty in such an economy is self-sustaining because it blocks the accumulation of capital from both directions at once, and the apparent circularity of the sentence is the point rather than a flaw in it. On the supply side the chain runs like this: a low level of income leaves very little margin above subsistence, so the capacity to save is small; small savings mean a small volume of investment; a small volume of investment leaves each worker with little capital to work with, so productivity stays low; and low productivity is precisely what makes income low. On the demand side the chain runs in parallel: low income means low purchasing power, so the domestic market for any new product is small; a small market gives an investor little inducement to build a factory, since the output could not be sold; weak inducement to invest again means little capital formation, again low productivity, and again low income. Both circles close on themselves, which is why the country's poverty is at once the cause and the consequence of its poverty. The practical conclusion Nurkse drew from the demand-side circle is the doctrine of balanced growth: since no single industry can prosper in a market too poor to buy from it, investment should be made simultaneously across a range of industries so that the workers employed in each become the customers of the others, enlarging the market from within. He also argued that the disguised unemployment of an overcrowded agriculture represented a hidden saving potential that could be mobilised for capital projects. Option (2) is therefore the answer.

Why the other options are wrong — (a) Gunnar Myrdal is the most dangerous of the three wrong names, because he argued something genuinely similar and a candidate who knows both economists may hesitate. Myrdal's principle of circular and cumulative causation holds that in a poor economy a change tends to reinforce itself rather than to be corrected, so that advantage accumulates in the regions that are already advancing while the rest fall further behind — the backwash effects outweighing the spread effects. That is a theory of self-reinforcing inequality between regions and groups, and it is set out at length in his study of poverty in South Asia. It is not, however, the source of this particular sentence, which belongs to Nurkse's account of the vicious circle of poverty. The distinction worth holding is that Nurkse's circle explains why a poor country cannot accumulate capital, while Myrdal's cumulative causation explains why disparities widen instead of narrowing.  (c) Lionel Robbins belongs to a different branch of the subject altogether. He is remembered for the scarcity definition of economics, advanced in his essay on the nature and significance of economic science, which describes economics as the study of human behaviour as a relationship between ends and scarce means that have alternative uses. That definition shifted the discipline away from Marshall's concern with material welfare and towards the logic of choice under scarcity, and it is the reason Robbins's name appears in every discussion of what economics is. It has nothing to do with development economics or with the mechanics of capital formation in poor countries, and his name is in this option set as one of two famous economists included to test whether the candidate can attach a quotation to the right field before attaching it to the right person.  (d) Alfred Marshall is the founder of the Cambridge school and the author of the Principles of Economics, and his contribution lies in microeconomic analysis — the joint determination of price by demand and supply, elasticity of demand, consumer surplus, and the distinction between the short and the long period — together with the welfare definition of economics as the study of mankind in the ordinary business of life. He wrote before development economics existed as a field, and nothing in his work addresses why a poor country remains poor in the sense this quotation intends. As with Robbins, the surest way to eliminate this option is to notice that the sentence is a statement about underdevelopment, which places it in a body of work written largely after the Second World War, and neither Marshall nor Robbins belongs to it.

Concept: The vicious circle of poverty is the central idea of early development economics and it is best held as two chains that close on themselves. The supply chain runs from low income to low saving to low investment to low capital per worker to low productivity and back to low income; the demand chain runs from low income to small purchasing power to a small market to weak inducement to invest, and so again to low capital, low productivity and low income. Because both circles are closed, a small increase in effort at any single point tends to be absorbed rather than to break the pattern, which is why the theories built on this diagnosis all call for a large and simultaneous intervention: Nurkse's balanced growth, in which investment across many industries creates the market for each, and Rosenstein-Rodan's big push, which makes the same argument in terms of indivisibilities and external economies. Against them stands Albert Hirschman, who argued that a capital-scarce country cannot mount a broad front and should deliberately invest in strategically chosen sectors so that the shortages and opportunities created — the backward and forward linkages — draw investment into the rest of the economy. Gunnar Myrdal's circular and cumulative causation belongs to the same family of self-reinforcing explanations, but applies it to the widening of disparities between regions.

State PCS 2023 Q55 — Economy PYQ with Answer

State PCS 2023 Q55 — Economy PYQ with Answer