Prelims 2013 · Economy · Question 42
Economic growth in country X will necessarily have to occur if
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.