Students must practice these AP Inter 2nd Year Economics Important Questions 1st Lesson Economic Growth and Development to boost their exam preparation.
AP Inter 2nd Year Economics Important Questions 1st Lesson Economic Growth and Development
Long Answer Questions
Question 1.
Explain the characteristic features of Developed Countries.
Answer:
The countries of the world are divided into two categories, namely, developed and developing countries based on certain features like per capita income, standard of living etc. Generally, all developed countries are also referred as high-income countries advanced and industrialized countries, e.g.: USA, UK, France, Germany, and Canada.
Characteristic features of Developed Countries :
1) High per capita Income : An important feature of developed countries/Economies is high per capita Income. As per the World Development Report 2013, the per capita GNI of USA at $ 50,120 (at official exchange rate) and $ 50,610 (purchasing power parity) was 33 times higher and 13 times higher than that of per capita GNI of India of $ 1,530 in the year 2012.
2) Importance (pre-dominance) of Non-Agricultural sectors : Another important feature for developed Economies/Countries is dominance of Non-agricultural sectors, (i.e., Industrial and Service Sectors). In these Economies, the contribution of these non-agricultural sectors to GDP and employment generation is high when compared to agricultural sector. Being more developed the productivity of the Non-agricultural sectors is higher than that of agricultural sector. As per the World Bank, World development indicators of 2014, the proportion (percentage) of people engaged in agricultural sector is 1.6 and contribution of the agricultural sector to GDP is 1.3 per cent in USA while these percentages for a developing country like India are 51.1% and 18% respectively.
3) Abundance of Capital and Technology: As all developed countries are high income countries the rates of savings and capital formation in such countries are high than those of developing countries. With such abundant capital, they use modern and “ sophisticated technology. In such countries, the banking and financial system is well developed and mobilise savings efficiently.
4) Low level of Unemployment: There is a basic difference in the nature and ” magnitude of unemployment between developed and developing countries. Unemployment in developed countries is low and is basically in the form of cyclical and frictional in nature. Such unemployment arises due to deficiency of effective demand. However, in developing countries like in India, there is open and disguised unemployment which arises due to a deficiency of capital. The rate of unemployment in developed Economies is marginal (very low) and skills, productivity and mobility of labour are higher in developed countries.
5) Better quality of life: The quality of life of people in developed countries is better. They are assured of effective social security system, and better facilities like safe drinking water, better compliance of pollution standards well organized health care system and sanitation etc.
As per the data of 2011-T2, the public expenditure on education and research in USA is more than 6% of its GDP,while in developing countries it is around 3% of GDP. As per the data of 2013, in terms of Human Development Norway, Australia and Switzerland occupied 1st, 2nd and 3rd ranks while India stands 135 out of 181 countries.
Question 2.
India is a developing country — Discuss.
Answer:
According to United Nations, “the countries which have real per capita income of less than a quarter of the per capita income of the United States are developing Economies”.
India can be taken to be a good example of a developing country. The following features of India justify India’s status as a developing country.
1) Low per capita Income: Low per capita Income an important feature of developing countries is clearly found in India. The per capita GNI of India was very low at $ 1,530, while that of USA was as high as $ 50,120 in 2012.
2) Scarcity of Capital: Another important feature of the developing Economy that is scarcity of capital is clearly visible in India. Being a low-income country, the rate of savings and capital formation is very low leading to the use of primitive technology. Even though the rate of savings and capital formation are 27.9% and 35.6% of GDP in 2012, they are not adequate to generate the required Economic growth rate in the Economy.
3) Demographic Characteristics: Demographic features like high birth rate, high death rate, low life expectancy at birth etc. Justify India to be a developing Economy. As a developing Economy in India the average annual growth in population is 1.64%, Birth rate is 21.6, death rate is 7.0 and the life expectancy at birth rate is only 66 years in the year 2011.
4) Unemployment: Widespread unemployment, a prominent feature of developing Economies is clearly found in India. Being a developing Economy, there is open unemployment, seasonal and disguised unemployment in rural areas of India. In addition, the Migration of unemployed people to Urban areas is contributing to urban unemployment. The Planning Commission’s estimate that the number of total employed in India would be around 82 million by the end of 11th Five-Year Plan is sample proof of India’s status as a developing Economy.
5) Predominance of agriculture: India’s status as a developing Economy can be justified with its agricultural sector, being a predominant sector. In 2013-T4, 54.6% of the working population is engaged in agricultural sector to GDP is 13.9%. Even though the agricultural sector is dominating sector, it is technically backward and its productivity is very low due to defects like small and Uneconomical land holdings etc.
6) High incidence of poverty: Another important feature that justifies its position as a developing Economy is existence of high incidence of poverty. It is estimated that about 230 million people consisting of 17.59% of population are below the poverty line in 2013. Even though poverty ratio is gradually decreasing, still it is very high which supports India to be a developing Economy.
7) Income inequalities: Large and wide income inequalities, a very important feature of developing Economies are also visible in India. In 2010, the lowest 20% of the households had just a share of 9% of the aggregate expenditure, while highest 10% of the households had a share of 29% of Aggregate expenditure. It is also observed that top 5% of the households possessed (owned) 38% of toted assets, while bottom 60% of the households owned a mere 13% of the total assets.
8) Low Quality of Life : Being an important and 2nd fast developing economy in the world in India, the quality of life of the people is very low. It is indicated in the form of malnutrition, lack of sanitation and safe drinking waters etc. In addition features like high infant mortality rate (61 per 1000), high birth rates and death rates (21.6 and 7 respectively in 2012) low life expectancy at birth (of 66 years in 2011) low general literacy rate (65.46 in 2011), etc. justify India to be a developing Economy.
9) Technological Backwardness: Technological backwardness, an important features of developing countries is, prevent in all sectors of the economy. Due to the scarcity of capital and less focus on research and development, India is unable to use modern technology opposition from labour unions is responsible for non-adoption of modern technology.
10) High density of population: Being a low income country and developing economy, India is experiencing high density of population. In 2011, the (average) density of population of the world was 50 per sq.km., while it was as high as 382 per sq.km, in India. With population of density of Canada and Australia, a mere 4 and 3 per sq.km, respectively.
11) Dual Economy: Dual economy, a very important feature of a developing economy, is clearly visible in India. There is technical dualism with relatively more developed Industrial sector and Urban areas using modern technology and less developed and backward agricultural sector using primitive and traditional technology. In addition there are also social dualism and financial dualism in India that justify India to be e termed as a developing Economy.
12) Price Instability: Price instability, sustained and persistent inflation, very important features of any developing economy are prevalent in India. With factors like emphasis on planned development high growth rate of population, shortage of essential items, dismal performance of agricultural sector, raising public expenditure, etc. India is experiencing the problem raising inflation and price instability.
Question 3.
Explain the features of developing countries with special reference to India. [Mar. 19 (AP&TS); Mar. 18, ’17; May 18, 17]
Answer:
The world countries are basically divided into two categories namely developed countries and developing countries.
According to United Nations “the countries which have real per capita income (of) less than quarter of the per capita income of the United States are developing Economies.”
“An underdeveloped economy is characterized by the existence, in greater or lesser degree, of Unutilised or under utilised man power on the one hand and of unexploited natural resources on the other” —* Planning Commission of India.
Features of Developing countries:
1) Low per capita Income ; All developing countries are also called as low income Economies / Countries and an important feature of developing countries is low per capita Income. According to World Development Indicators (2013) the per capita Income of a developing Economy India, was $ 1530 (exchange rate basis) while that of USA was as high as $ 50,125 and that of Switzerland $ 82,730.
2) Scarcity of Capital: As all developing economies are low income countries with low per capita incomes, there is Chronic shortage of capital. In these countries due to inadequate development of financial sector, Banking and financial institutions, financial markets and low rate of savings, the rate of capital formation and mobilisation is very low. The rate of capital formation in developing economies is very low between 15 and 20% of GDP. Even though Gross domestic savings, as percentage of GDP, at 27.9% and Gross Capital formation, as percentage of GDP, at 24% are reasonable, they are not enough and adequate to speed up industrialisation and to achieve the needed growth in the Economy.
3) Demographic Characteristics: An important feature of all developing Economies/ Countries is heavy population pressure and population explosion. The average annual growth rate of population of many of the developing countries around 2%. The population of India has increased from 121 crores in 2011 to 127.8 crores in 2015, constituting 17.5% of world population. Such rapid growth of population in India is
aggrevating the problem of poverty and unemployment in the Economy.
4) Unemployment: Another important feature of developing countries is the problem of wide spread unemployment. Due to factors like rapid growth population, pancity of capital, low growth in agricultural sector, and slow industrialisation, etc. developing countries in general suffer with the problem of disguised unemployment (in rural areas) and open unemployment (in urban areas). It was observed by the Planning Commission, that the (back log) number of Unemployed people which was 37 million at the beginning of the 11th Five Year Plan, would increase to 82 millions by the end of 11th Five Year Plan, with the addition of 47 million unemployed people during the plan period.
5) Predominance of Agriculture: Predominance of agriculture that is agricultural sector being dominant and having more importance than other sectors, is an important feature of all developing Economies/Countries. They are agrarian in nature. India being a prominent developing country, in 2013-T4, about 54.6% of working population is engaged in agricultural sector and agricultural sector contributes 13.9% to GDP. Due to primitive technology used in agriculture, the incomes of the farmers are very low and marketable surplus is very less.
6) High incidence of Poverty: Another important feature of developing countries is high incidence poverty. With low incomes and severe poverty, the people of such countries suffer with poverty related problems like ill health, malnutrition, illiteracy, etc.
The report of the Planning Commission, June 2014, states that in 2011-T2, 21.9% of population of India is below poverty ratio and the number poor people to be 269.8 millions.
7) Income inequalities: Yet another important feature of a developing Economies is disparities of Income and wealth between rich and poor sections of the society. Such inequalities are more glaring and larger than in developed Economies. The findings of the Institute of applied Manpower research observes that top 5% households possess or own 38% of total assets, while the bottom 60% of the population owing a mere 13% of total assets. It is also observed that India’s richest 100 had a combined net worth of as high as X 12,06,375 crores equalling 17% of GDP of India in 2010-11.
8) Low quality of life: Another important feature of all developing countries is low quality of life of the people: People of developing countries suffer with problems like Malnutrition, high level of pollution, lack of sanitation, non-availability of safe drinking water, etc. In India in the year 2012, the birth rate at 21.6 and death rate at 7.0 are still very high in comparison with developed countries. Similarly, during the year 2011, the life expectancy at birth of 66 years and general literacy rate of 74.04% are very low comparison with developed economies like Switzerland, Canada, USA, etc.
9) Technological backwardness: Technological backwardness or the use of the primitive or traditional technology is an important feature of all developing countries. The active shortage of capital and the opposition of trade unions to the introduction of new technology are the reasons for the use of technological backwardness. Even in this 21st century, in India most of the farmers in India still use traditional methods like ploughs and bullocks, manual lifting of water, etc.
10) High density of population: An important feature of all developing Economies is high density of population due to large size of population. In the year 2011, the average density of population of the world was 50 per km while the density of population, of India a typical developing country was as high as 382 per sq.km. But in USA, it was 33, 4 in Canada and 3 in Australia.
11) Dual Economy: Another prominent feature of developing countries is Economic Dualism. It is a situation where two sectors, advanced and backward or modern and traditional sectors operate or exist simultaneously (side by side). In such Economies, there are different types of dualism – technical dualism, social dualism and financial dualism.
In India there is technical dualism with technically advanced Industrial sector existing along side of traditional arid backward agricultural sector. Technical dualism ultimately leads social dualism in the form of income inequalities.
12) Price instability: Another important feature of developing countries is price instability. Due to shortage of essential commodities and wide gap between production and consumption. Raising rate of inflation and instability in prices is a common phenomenon in India.
In addition to above, developing countries are characterised by lack of developed means of transport and communication, Inadequate banking and financial system etc.
Short Answer Questions
Question 1.
Differentiate between Economic growth and development.
Answer:
Till recently, (1960s) the terms Economic Growth and Economic Development were used synonymously. But Modern Economists made distinction between Economic Growth and Development.
Economic Growth a narrow concept refers to an increase or (Positive and upward change) in the real output of goods and services in an Economy.
Economic Development, a broad concept not only refers to a change or positive increase the physical output of goods and services but also to all those changes (or) improvements in social technological, structural and institutional factors that have contributed to or made possible physical change.
“Economic Development may be defined as a process where by the real per capita income of the country increases over a long period of time” – G.M. Meier.
Differences between Economic Growth and Development:
| Economic Growth | Economic Development |
| 1) Economic Growth refers to (or indicates) an increase in the physical Quantity or real output of goods and services. | 1) Economic Development refers to not only Quantitative change in the real output of goods and services (Economic Growth) but also to all progressive and qualitative improvements / changes in the SocioEconomic structure of the Economy. |
| 2) It is undimensional and refers to a single phenomenon. | 2) It is multidimensional because it covers not only Economic Growth and many other qualitative improvements. |
| 3) It is a narrow concept. | 3) Development is a broad concept. |
| 4) Economic Growth is related to developed countries like USA, Canada, etc. where there are already institutional changes and technical development. | 4) It is related to developing countries of the word, like India, etc. where institutional and technical changes are still to be made. |
| 5) Economic Growth does not require government interference or intervention. | 5) Development is not possible without active government interference or intervention. |
| 6) Economic Growth refers to or indicates only the quantitative changes in the Economy. | 6) Economic Development denotes or indicates qualitative improvements in the Economy. |
| 7) Economic Growth does not focus on or indicate the distribution of income and wealth in the Economy. | 7) It focusses on or indicates the distribution of income and wealth in the Economy. |
| 8) Economic Growth can be compared with the physical growth of a person. | 8) Economic Development can be compared with over all improvement of a person, both physical changes and intellectual improvements. |
| 9) Economic Growth, being quantitative jn nature, can be measured. | 9) As Economic development is Qualitative in nature, it cannot be measured. |
Question 2.
Explain the determinants of economic development.
Answer:
“Economic Development is a process whereby an Economy’s real national income increases over a period of time” – GM Meier.
According to Colin Clark, “Economic Development is simply an increase in Economic welfare”.
Determinants of Economic Development:
The determinants of Economic Development are broadly divided into types, namely, * 1) Natural factors/Resources 2) Economic factors 3) Non-Economic factors
1) Natural Resources:
Economists like Jacob Viner, J. Baumol and W.A. Lewis feel that Natural resources available in a country are an important factor that determine Economic Development of a country. Countries have Vast natural resources like availability of coal and other minerals fertile soil abundant supply of irrigation water, etc. can achieve rapid Economic Development. But natural resources can contribute to Economic Development only if they are rationally utilised.
2) Economic Factors:
Economic factors that contribute to rapid Economic development are
a) Capital formation: Capital formation is an important factor that determines the pace of Economic Development of a country. Countries/Economies with a high rate of savings and high rate of capital accumulation can achieve rapid development than other Economies of the world. Development of Economic and Social Infrastructure depends upon the availability of capital.
b) Marketable Surplus: The surplus or excess of the agricultural output of the farmers after satisfying the basic needs of the farmers like food and seed requirements, known as Marketable surplus, is an important determinant of Economic Development. Such larger marketable Surpluses, by increasing the incomes of rural people promote rural demand for goods and services and new industrial investments, result in rapid Economic development.
c) Foreign Trade: Another determinant of Economic Development is the volume of foreign trade in the Economy. By creating international demand for goods, it contributes to expansion output and employment and facilitates division of labour and specialization. By encouraging import of foreign capital and foreign technology foreign trade contributes to rapid Economic Development.
3) Non-Economic Factors:
a) Human Resources: The pace of Economic Development of a country also depends upon the availability of Quality and size of human resources in the Economy and their proper and optimum utilisation. If an Economy is endowed with highly educated, literate and skilled population with modern and scientific thinking, such an Economy can achieve rapid development than other Economies.
b) Technical Progress: Technical progress or Technology is another factor, that influences/determine Economic development of a country. The option of new technology and adoption of the new production processes by enhancing industrial productivity cost minimisation, large scale production contributes to rapid Economic Development.
c) Political Freedom: Another important determinant of Economic Development is whether such an Economy enjoys political freedom or not. After getting independence and freedom British rule, many developing countries of the world initiated Economic planning to achieve rapid Economic Development.
d) Social Organisation: Social progress and social stability, public awareness and peoples active participation in development activities are very important factors that determine the pace of Economic development. Developed countries like USA, with higher literacy level and active social participation, are able to achieve rapid development than other countries.
e) Corruption: An important obstacle to Economic Development is corruption. Corrupt practices like tax evasion, misappropriation of public funds, bribery are an important hurdles in the development of a country.
f) Desire to develop: Whether a country can achieve rapid development or not depends upon the urge or desire of the people to develop factors like work culture, hand work, positive altitudes, sincerity, good moral and ethical values among the people of the society rapid Economic Development.
Very Short Answer Questions
Question 1.
Economic Growth. [May 2017]
Answer:
The term Economic Growth generally refers to a physical or quantitative increase in the output of goods and services in the country. In other words, it refers to the increase in the real output of goods and services. It is a narrow concept and simply refers to short t< m Quantitative changes.
Question 2.
Economic Development. [March 2018]
Answer:
Economic Development is a broad concept and refers to both quantitative changes and Qualitative improvements like technological changes, institutional development organizational changes and social development, etc. In other words, it refers to long term change that takes place in the Economy.
Question 3.
Per capita income [Mar. ’19 (AP); May. 2018]
Answer:
The income per head or the income received on an average, by each individual in a country is called per capita income. It can be known by dividing by net national income of the country with the population of the country.
Per capita income and changes in reed per capita income are important indicators of Economic Development.
Question 4.
Planning Commission’s definition of a developing country.
Answer:
According to Planning Commission of India, “An underdeveloped Economy is characterized by the existence, in greater or lesser degree, of unutilized underutilized manpower on the one hand and of unexploited natural resources on the other”.
Question 5.
Human Capital
Answer:
The term human capital refers to the expenditure made in the society to improve the skills and productive ability of the human beings. It refers to the expenditure made in t the Economy on education, health, training, skill development among people.
Question 6.
World Bank’s classification of world countries
Answer:
According to World Development Report (2014), of World Bank, the World Bank has classified into different countries based on their per capita Gross National Income as below.
- Low-Income countries with GNI per capita of $ 1,045 and below.
- Middle-Income Countries with GNI per capita ranging between $ 1,046 and $12,746. Middle-Income countries are divided further into.
a) Lower Middle-Income countries with GNI per capita ranging between $ 1,046 and . 1,035.
b) Upper Middle-Income countries with per capita GNI ranging between $ 4,126 and $ 12,745. - High-Income countries, with per capita GNI of $ 12,747 and more.
Question 7.
Dual Economy. [March 2017]
Answer:
A Dual Economy is such Economy where technically advanced and technically primitive and backward Economies exist side by side or simultaneously. Indian Economy is an example of dual Economy since technically developed Industrial sector and technically backward agricultural sector exist simultaneously.