According to Higins Population growth can be ________.
(a) A motivator for autonomous investment in developed countries.
(b) A motivator for induced investment in under-developed countries.
(c) A moti

Question

According to Higins Population growth can be ________.
(a) A motivator for autonomous investment in developed countries.
(b) A motivator for induced investment in under-developed countries.
(c) A motivator for only induced investment in developed countries.
(d) Demotivate for autonomous investment in a developed countries.
Answer options :

UnlockIAS · Accepted Answer

Correct — option (3), only (a). The question turns on the distinction between autonomous and induced investment, and on the fact that population growth does not act the same way in a rich economy as in a poor one. Autonomous investment is investment undertaken independently of the current level of income or profit: houses, schools, water supply, roads, power and the other capital a larger population requires simply by existing. Induced investment is investment called forth by a rise in income and demand that has already happened — the accelerator mechanism. In a developed economy, additional people arrive into an economy that already has savings, entrepreneurship, credit and an integrated market, and they arrive as both a larger workforce and a larger market; the housing and infrastructure they need has to be built whether or not profits are currently high, so population growth acts as a standing outlet for autonomous investment. That is precisely the channel Alvin Hansen relied on in reverse when he argued that the slowing of population growth in mature economies had removed one of the great historical outlets for investment and helped produce secular stagnation. In an under-developed economy the arithmetic is different: additional people arrive without additional purchasing power, so effective demand does not rise in step, the extra output goes into feeding a larger population rather than into savings, and scarce capital has to be spread more thinly over more workers instead of being deepened. Population growth there is a claim on resources rather than an inducement to invest, which is why statement (b) does not stand and why the argument printed here as Higgins's — the paper spells the name 'Higins' — leaves statement (a) alone as the surviving proposition.

Why the other options are wrong — (a) This keeps statement (a) but adds statement (b), which claims population growth motivates induced investment in under-developed countries. Induced investment responds to a rise in income and demand that has already occurred, and that is exactly what a growing population in a poor economy fails to deliver: the additional people bring additional mouths but not additional purchasing power, so the extra numbers show up as pressure on land, food and existing capital rather than as the expanding market an investor would respond to. This is the standard case for treating rapid population growth in a poor economy as a burden on capital formation, and adding it to the correct statement converts a right answer into a wrong one.  (b) Statement (d) — that population growth demotivates autonomous investment in a developed country — is the flat contradiction of statement (a), and it inverts the historical argument. A growing population in a rich economy creates an unavoidable programme of construction in housing, schooling, transport and utilities, which is investment that proceeds without waiting on current profitability; it is the fall in population growth, not its rise, that removes that stimulus, which is the core of the secular stagnation argument. Taking this statement alone therefore asks the candidate to believe the opposite of the proposition the item is testing.  (d) This pairs statement (b) with statement (c) and so gets both halves wrong. Statement (b) attributes an inducement to invest to population growth in poor economies, which is the burden case reversed. Statement (c) then restricts the developed-country effect to induced investment 'only' — and the single word 'only' is what destroys it, because the argument's whole point is that a rising population in a rich economy generates autonomous investment in social and physical overhead capital, quite apart from any accelerator response. A statement can be made false by an exclusion added to an otherwise reasonable claim, and that is what has happened here.

Concept: Investment is classified by what triggers it. Induced investment is a response to a change in output or income already realised — the accelerator says that a rise in demand requires more capital equipment to service it, so investment moves with the change in national income. Autonomous investment is independent of current income: it is undertaken because of population growth, technical innovation, the opening of new territory or a public decision, and it continues even in a depression. The distinction matters for population economics because the two channels respond to demographic change in opposite ways depending on the stage of development. A rich economy has idle savings, a developed capital market and entrepreneurs looking for outlets, so an extra million people constitute an extra million houses to build, schools to staff and services to lay on — a demand for capital that does not wait for profits to justify it. A poor economy has the opposite problem: savings are already scarce, and an extra million people consume the surplus that might have financed investment, so capital has to be widened across a larger workforce rather than deepened, and output per head stagnates. The same demographic fact is therefore an investment opportunity in one setting and a drag on capital formation in the other, which is the asymmetry the four statements in this question permute.

State PCS 2024 Q47 — Economy PYQ with Answer

State PCS 2024 Q47 — Economy PYQ with Answer