Civil Services Prep

Prelims 2013 · Economy · Question 42

Economic growth in country X will necessarily have to occur if

  1. there is technical progress in the world economy
  2. there is population growth in X
  3. there is capital formation in X
  4. the volume of trade grows in the world economy

Answer

there is capital formation in X

  • (a) Technical progress in the world economy: Not necessary for country X’s growth. A country can grow through domestic productivity gains even if the world economy has no technical progress. Verdict: Incorrect.
  • (b) Population growth in X: Population increase alone does not ensure higher output; it may even lower per capita income if jobs and productivity do not rise. Verdict: Incorrect.
  • (c) Capital formation in X: Capital formation raises the stock of productive assets, increasing an economy’s capacity to produce; this is a direct driver of economic growth. Verdict: Correct.
  • (d) Growth in world trade volume: World trade may expand without country X benefiting or growing; gains depend on X’s participation and competitiveness. Verdict: Incorrect.
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