Unit 1

Economic growth and Development

Q1) What do you understand from economic growth?

A1)

In its most basic form, economic growth refers to an increase in an economy's total production. Aggregate output gains are often, but not always, associated with higher average marginal productivity. As a result, incomes rise, encouraging consumers to open their wallets and spend more, resulting in a higher material quality of life or standard of living. Undefinable

Physical resources, human capital, labour force, and technology are all widely used to model development in economics. Simply put, increasing the number or quality of working-age people, the resources they have at their disposal, and the recipes they have for combining labour, capital, and raw materials would result in increased economic production.

Economic development can be achieved in a variety of ways. The first is an improvement in the economy's stock of physical capital goods. Increasing the amount of capital in the economy appears to increase labour productivity. Workers can generate more production per time period with newer, cheaper, and more equipment. A fisherman with a net, for example, can catch more fish per hour than a fisherman with a pointy stick. However, there are two aspects that are crucial to this operation. Everyone in the economy must first save (give up current consumption) in order to free up money for the creation of new capital, and the new capital must be of the right kind, in the right position, at the right time for workers to use it productively.

Technological advancement is a second means of generating economic development. The invention of gasoline fuel is an example of this; prior to the discovery of gasoline's energy-generating capacity, the economic value of petroleum was comparatively poor. Gasoline became a more reliable and cost-effective way of moving goods in process and exporting finished goods. Improved technology enables workers to generate more production from the same amount of capital goods by integrating them in more efficient ways. Since savings and investment are needed to engage in research and development, the rate of technological growth is highly dependent on the rate of savings and investment, just as it is for capital growth.

Q2) Describe economic development in detail.

A2)

Economic growth, on the other hand, is a phase in which the lives of all citizens of a country change. This includes not only the improvement of living conditions, such as increased access to goods and services (and the opportunity to purchase them), but also the enhancement of virtues such as self-esteem, integrity, and respect, as well as the expansion of people's right to choose and manage their own lives. While a country may grow richer therefore, through the growth of its real output, it does not necessarily mean that it will develop.

For a long time, industrial construction was thought to be a contributing factor to economic growth. Economic development was thought to occur when there was a high degree of industrialisation and economic growth; social factors like poverty and unemployment were thought to be less important. It was also thought that the material benefits of growth would filter down from the wealthy to the rest of the population, resulting in development. Many developed countries, on the other hand, have managed to attain high rates of economic growth while the majority of their citizens have seen little improvement in their living standards. As a result, it was realised that the concept of economic growth needed to be altered. "It would be odd to call the result 'growth' even if per capita income doubled," writes Dudley Seers, "if one or two of the central problems (poverty, unemployment, or inequality) have been growing worse, particularly if all three have" (from D.Seers, 'The sense of economic development').

Q3) Write the three believes of growth of ‘Prof. Michael Torado’. Also Explain How Economic Development can be measured? 

A3)

1. "Improve the availability and spread of essential life-sustaining goods such as food, housing, health, and security."

2. To improve living standards, through the creation of more jobs, better education, and a greater focus on cultural and humanistic values, all of which would contribute to increased individual and national self-esteem in addition to increased material well-being.

3. To broaden the economic and social options open to individuals and nations by liberating them from servitude and dependency, not only in relation to other citizens and nation-states, but also in relation to powers of ignorance and human suffering."

Economic development is measured using a variety of indicators, including GNP/GDP per capita, population growth and structure, health, education, technology, jobs, rural/urban migration, women's rights, and poverty and income distribution. In terms of statistics, the best single indicator is GDP per capita, but composite indices of growth are also used. The Human Development Index (HDI), which includes GDP per capita, life expectancy, and literacy rates, is one such index.

Q4) What is Sustainability? Write The Two Necessities Of Sustainable Development?

A4)

The environment's ability to withstand its use for economic purposes. As a result, for economic growth to be sustainable, it must have a resource-neutral impact. Any energy used must be sustainable, and there must be no long-term environmental consequences. So, what is the significance of sustainable development? It is important, however, that growth is sustainable in order to ensure that it will last in the long run and is not based on the exploitation of natural resources that could become depleted in the future.

As a result, sustainable development necessitates-

Q5) Explain Human Development in Details.

A5)

Human development can be described as "a process of expanding people's choices," according to the United Nations Development Programme (UNDP). People's three basic choices at all stages of growth are to live a long and safe life, to gain better knowledge, and to have access to resources necessary for a decent standard of living. Many other opportunities to enhance one's quality of life would be unavailable if these basic options are not accessible. The acquisition of human skills and the use of these acquired capabilities for productive, leisure, and other purposes are two aspects of human growth. Since people are the very essence of human growth, the benefits of human development extend far beyond increased income and wealth accumulation.

 Economic growth is just one aspect of human development. Human development focuses on expanding all human choices, such as education, health, a safe climate, and material well-being, while economic growth focuses on improving one choice, such as income or commodity. Thus, the quality of economic growth in a broader sense influences the options available for improving people's lives, and the effect is not limited to quantitative aspects of such growth. In other words, economic growth must be viewed as a means of progress, albeit a significant one, rather than the end goal. If the gains of income are converted into more fulfilled human lives, it makes a significant contribution to human well-being in general. However, income growth is not a goal in and of itself.

 The quality of development, not just the amount, is critical for human well-being. As a result, as the primary objective of human endeavour, the philosophy of human development is primarily concerned with allowing people to live a better life. This aim cannot be accomplished exclusively by increases in income or material well-being, according to the author. Growth may be jobless, rather than job-creating; ruthless, rather than poverty-reducing; voiceless, rather than participatory; rootless, rather than culturally enshrined; and futureless, rather than environmentally friendly, as the 1996 Human Development Report put it. Jobless, merciless, voiceless, rootless, and futureless economic growth is not conducive to human development. Income poverty is only one form of human poverty; deprivation can also manifest itself in other ways, such as living a short and unhealthy life, becoming illiterate or unable to participate, feeling insecure, and so on. As a result, human poverty is greater than economic poverty.

Q6) Write Difference between Economic Growth and Economic Develpopment.

A6)

Q7) Describe capital formation in details.

A7)

To produce goods and services, labour and capital are combined. To work, workers need machinery, equipment, and factories. Jobs are more efficient when they have access to resources. More factories with machines and tools are being built, increasing the economy's productive potential.

As a result, many economists believe that capital accumulation is at the heart of economic growth. The mechanism of economic growth cannot be accelerated without capital accumulation, regardless of the form of economic system.

Productivity levels in the United States of America are extremely high, owing to the fact that American workers have access to more and better capital goods over the last few years. The lack or shortage of real physical resources in developing countries is primarily responsible for their low productivity and poverty.

Much economic development cannot be accelerated without the accumulation of various forms of capital goods, such as factories, machinery, tools, dams, bridges, highways, railways, ports, ships, irrigation works, fertilisers, and so on.

However, capital accumulation necessitates saving, or the foregoing of any existing use. Investment is the only way to improve capital goods stocks, and investment is only feasible if a portion of current income is saved. As a result, saving is essential for economic development.

“The central problem in the theory of economic growth is to understand the mechanism by which a society is transformed from a 5% saver to a 12% saver, with all the shifts in behaviours, structures, and techniques that follow this conversion,” says Professor Arthur Lewis. Underdeveloped countries save a small percentage of their national income, typically less than 5%.

Savings in India, for example, was around 6% of national income on the eve of independence. Rich nations, on the other hand, save 15 to 30% of their national income. Savings rates must be increased to over 15% of national income in order to achieve economic growth.

However, in developing countries, the rate of saving is poor because people's income is low and they live on a subsistence level. As a result, the lower the per capita income, the more difficult it is to refrain from purchasing current goods. People who live on or near the edge of subsistence find it difficult to reduce their current intake. This helps to understand why poor, developing countries have such low savings rates.

It should be noted that India's gross saving rate has risen to 24% of national income in 2001-02. However, it is projected that achieving an 8% rate of growth in GNP in the 10th plan period would necessitate a 32% rate of saving if the capital-output ratio remains constant at 4, as it was in the 9th plan period.

Q8) What is Technological Progress and Economical Growth ? Also Suggest Five Stages Of Prof. Rostow Of Economic Development.

A8)

The use of new manufacturing methods or technological advancement results in a substantial increase in per capita output. The term "technological progress" refers to the discovery of new and improved ways to do things, as well as improvements to existing methods.

The availability of natural resources may sometimes be increased as a result of technological advancements. However, technological advancement increases the efficiency or efficacy with which natural resources, money, and labour are used and employed to manufacture products in general. Because of technological advancements, it is now possible to generate more production with the same resources or the same amount of product with less resources.

However, the issue of how technical advancement is made arises. Technological advancement is achieved by discoveries and developments. The term "invention" refers to new scientific discoveries, while "innovation" refers to when such discoveries are put to use in actual manufacturing processes or for commercial purposes. It's possible that certain technologies aren't commercially viable for mass production.

It is common knowledge that technological advancements significantly enhance the efficiency with which natural resources are used. Increased use of mechanised power-driven farm machinery on land in the United States, for example, has significantly increased agricultural production per hectare.

It's also worth noting that certain technical advancements have improved the efficiency with which capital goods are used. However, as previously noted, technological progress typically leads to increased resource productivity.

These stages are :

Traditional society;

(ii) Takeoff Preconditions;

(iii) Takeoff into Self-Sustained Development;

(iv) Stage of high mass consumption and

(v) Drive to maturity.

Q9) Explain the concept of Growth and Population in brief.

A9)

As the population grows, so does the number of people employed, or the labour force, assuming that everyone is absorbed into productive jobs.

We saw above that, according to Denison's calculations, an increase in the quantity of labour contributed 32 percent to production growth in the United States from 1929 to 1982. Additionally, as the population grows, so does the market for products.

As a result, an increasing population means a larger demand for products, which aids the development process. When a demand for commodities is expanded, it becomes possible to manufacture them on a large scale and enjoy the benefits of large-scale production economies. The economic history of the United States and European countries indicates that population growth played a significant role in increasing national output.

However, what has been true in the United States and Europe might not be true in today's developing countries. The size of the population determines whether or not population growth leads to economic growth the natural and capital resources that are accessible, as well as the current technology.

In the United States, where natural and capital resources are relatively plentiful, population growth boosts national productivity by growing the amount of labour available. In India, where other economic resources, especially capital equipment, are limited, population growth hinders rather than promotes economic growth.

To produce goods and services, labour and capital are combined. As a result, an increase in the labour force would lead to economic growth if the cooperating factor capital increases as well. To work in modern times, jobs need computers, equipment, and factories. Since a developing country like India has a large surplus of labour but a limited stock of capital, workers working in certain activities cannot be efficient.

As a result, we can see that a rapidly expanding labour force is no guarantee of economic development. Increases in national production, or economic development, are only possible when the supply of capital and other resources keeps pace with the growth of the labour force.

Q10) State the formula of Harrod-Domar for rate of economic growth.

Express it’s equation and explain in short.

A10)

g= I/v

Where g denotes rate of growth (i.e., the rate at which GNP increases), I denotes rate of investment, and v denotes capital-output ratio.

The above equation can also be expressed as:

Growth Rate = Investment/Capital Ratio – Production Ratio

If the rate of investment in an economy is 30% of national income and the capital-output ratio is 4, the rate of economic growth can be calculated using the formula above.

Growth Rate = 30/4 = 7.5

As a result, the annual rate of increase in GNP of national income would be 7.5 percent.

The rate of expenditure is expected to increase to 28% of national income in the Tenth Five Year Plan (2002-07). Furthermore, the capital-output ratio is expected to fall to 3.5 as a result of increased productivity.

With a rate of investment of 28% of national income and a capital-output ratio of 3.5, the target rate of growth for the Tenth Plan period has been set at 8% per year (using the Harrod-Domar growth equation, namely (g = 1/v = 28/3.5 = 8%). Both the average rate of investment of 28% per year during the 10th plan cycle and the capital-output ratio of 3.5 will be met, based on the previous four years' experience.