ECONOMICS
ECONOMIC DEVELOPMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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saving remains low
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investment remains low
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Here is a lack of effective government
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investment increases
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Detailed explanation-1: -Supply side of vicious circle indicates that in underdeveloped countries, productivity is so low that it is not enough for capital formation.
Detailed explanation-2: -A poor person, in order to repay his existing debt, will borrow some more, thereby adding to his debt. Further, he will also incur interest payment obligations. This will only increase his total amount of debt. He is also likely to pass on this debt to his children, who will remain caught in this poverty trap.
Detailed explanation-3: -On the supply side, the low level of real income means low savings. The low level of saving leads to low investment and to deficiency of capital. The deficiency of capital, in turn, leads to low levels of productivity and back to low income. Thus the vicious circle is complete from the supply side.