Development Economics – Expanded Answers (2 Marks Each)

1. Define the concept of ‘economic growth’.

Economic growth refers to the sustained increase in the output of goods and
services in an economy over a period of time, typically measured by the rise
in Gross Domestic Product (GDP) or Gross National Product (GNP) at
constant prices.
2. Mention two major features of economic growth.
(i) Continuous increase in real national income or GDP.
(ii) Improvement in the productive capacity of the economy, often
accompanied by technological progress and capital accumulation.
3. What is ‘economic development’? Define.
Economic development is a broader concept than growth. It includes not
only sustained increases in per capita income but also improvements in
health, education, reduction of poverty, inequality, and expansion of human
capabilities and freedoms.
4. Distinguish briefly between economic growth and economic
development.
Economic growth is quantitative, focusing on GDP rise, while economic
development is qualitative, involving better living standards, reduction in
poverty, health, education, and equality. Growth can occur without
development, but development usually implies growth.
5. What is ‘well-being’? Explain with illustration.
Well-being refers to the quality of life and overall happiness of individuals,
including health, education, security, and freedom. For example, two people
may earn the same income, but the one with access to healthcare and
education enjoys better well-being.
6. Why is ‘per capita income’ not considered a sufficient measure of
economic development?
Per capita income ignores the distribution of income, does not capture non-
monetary aspects like health and education, and excludes informal sectors.
High per capita income may coexist with high inequality and poor social
indicators.
7. What is HDI? Illustrate briefly.
The Human Development Index (HDI) is a composite measure developed by
the UNDP to assess a country’s average achievements in three dimensions:
 health (life expectancy), education (mean and expected years of schooling),
and standard of living (GNI per capita).
8. What are the underlying dimension indices of HDI? Mention.
The three indices are:
(i) Life Expectancy Index (health),
(ii) Education Index (average and expected years of schooling),
(iii) Income Index (based on Gross National Income per capita).
9. Define the concept of ‘Capability’ as developed by Sen.
Amartya Sen’s Capability Approach defines development in terms of
expanding people's capabilities—what they are able to do or be. It focuses on
real freedoms and opportunities, such as being educated, healthy, and
participating in community life.
10.Justify the concept of ‘standard of living’ as an indicator of economic
growth.
Standard of living includes access to goods, services, and basic needs,
reflecting economic well-being. Although it does not capture all human
development aspects, it is still a useful proxy for evaluating economic
progress.
11.Mention the stages of growth put forward by W. W. Rostow in
chronological order.
Rostow identified five stages:
(i) Traditional Society,
(ii) Preconditions for Take-off,
(iii) Take-off,
(iv) Drive to Maturity,
(v) Age of High Mass Consumption.
12.Mention the stages of growth put forward by Karl Marx in
chronological order.
Marx outlined historical stages as:
(i) Primitive Communism,
(ii) Slavery,
(iii) Feudalism,
(iv) Capitalism,
(v) Socialism,
(vi) Communism – the final classless society.
13.What do you mean by a ‘dual economy’? Give an example.
A dual economy exists when a modern, industrial sector coexists with a
 traditional, subsistence sector. Example: In many developing countries,
urban manufacturing coexists with rural, informal agriculture.
14.Define the concept of ‘labour surplus economy’ with an example.
A labour surplus economy has more labor than needed in subsistence sectors
(like agriculture), so transferring workers to other sectors doesn’t reduce
output. Example: Arthur Lewis model shows surplus labor moving to the
industrial sector.
15.What do you mean by ‘economic dependency’?
Economic dependency refers to a condition where the economy of a less
developed country relies heavily on developed countries for trade, finance,
and technology, often leading to underdevelopment and lack of self-
sustaining growth.
16.Write down two major arguments as raised by Paul Baran on
dependency.
(i) Underdevelopment is a result of historical and external exploitation by
colonial and capitalist systems.
(ii) Domestic elites in poor countries often collaborate with foreign interests,
preventing real development.
17.What ‘core-periphery’ relationship is, as found in dependency schools.
The core-periphery model divides the world into developed (core) and
underdeveloped (periphery) countries. The core exploits the periphery
through unequal trade, capital flow, and control over resources, keeping the
periphery dependent.
18.Define the concept of ‘colonial exploitation’ as put forward by A. G.
Frank.
A.G. Frank argued that underdevelopment was created by colonial
exploitation where colonies were integrated into global capitalism in a way
that extracted resources and hindered local economic development.
19.Define the notion of ‘merchant capital’.
Merchant capital refers to the earliest form of capitalism where wealth was
generated primarily through long-distance trade and commercial exchange,
not through industrial production or labor exploitation.
20.What do you mean by ‘warranted rate of growth’ in Harrodian sense?
The warranted rate of growth is the rate at which the economy must grow so
that all saving is invested and full capacity is utilized, avoiding either
inflation or unemployment.
21.What is ‘knife-edge instability’ problem?
Harrod’s model suggests that any deviation from the warranted growth rate
leads to either cumulative inflation or depression, as there is no automatic
mechanism to return the economy to equilibrium—hence the term knife-
edge instability.
22.Mention two major assumptions behind Harrod’s model of growth.
(i) Fixed capital-output ratio (no substitution),
(ii) Constant savings rate from income, and full employment of resources at
the outset.
23.What ‘long-run instability problem’ is, as found in Harrodian growth
model?
Harrod’s model shows that the equilibrium growth path is inherently
unstable in the long run, meaning small deviations from the warranted
growth rate lead to widening economic fluctuations rather than convergence.
24.Write down two major building blocks of Domar’s model of growth.
(i) The productivity of investment: each unit of investment raises output by a
certain amount,
(ii) The rate of saving: determines how much of the national income is
reinvested to generate future growth.
25.What is the short-run equilibrium condition obtained from Domar’s
analysis on growth?
In the short run, Domar’s equilibrium requires that the rate at which capacity
grows due to investment equals the rate at which demand increases due to
investment-induced income, i.e., capacity growth = demand growth.
26.What do you mean by ‘technical progress’?
Technical progress refers to innovations and improvements in production
techniques that increase productivity. It allows more output from the same
amount of inputs by improving efficiency, often through better tools,
machinery, or processes.
27.How do you define ‘Harrod-neutral technical progress’?
Harrod-neutral technical progress is a type of labor-augmenting innovation
where productivity increases through improvements that make labor more
efficient, while the capital-output ratio remains constant. It helps maintain a
steady growth path without causing imbalance.
28.Write two major assumptions of Solovian growth model.
(i) The production function exhibits constant returns to scale and diminishing
returns to each factor.
 (ii) Technological progress is exogenous and labor and capital are fully
employed. The model assumes a competitive market and rational behavior.
29.Define the concept of ‘Steady state growth’, as per Solow model of
growth.
Steady state growth occurs when output, capital, and labor grow at constant
rates. In this state, capital per worker and output per worker remain stable
over time, and the economy grows at the rate of technological progress.
30.Which state is considered as ‘stationary state’ in growth process?
Mention.
A stationary state is when there is no economic growth — output, capital,
and labor remain constant. It occurs when investment only replaces
depreciated capital, without adding to future growth, leading to stagnation.
31.How do you define ‘technological progress function’?
The technological progress function represents how advancements in
technology contribute to increased production. It shows how output can
grow independently of input increases, usually expressed as a multiplicative
factor in a production function.
32.Define the concept of ‘Solow-neutral technical progress’.
Solow-neutral technical progress, also called Harrod-neutral, refers to
improvements that increase labor productivity without affecting the capital-
output ratio. It allows the economy to grow without disrupting equilibrium
conditions.
33.What do you mean by ‘absolute poverty’?
Absolute poverty is a condition where an individual’s income is insufficient
to meet basic needs like food, shelter, and healthcare. It is defined using a
fixed poverty line (e.g., $1.90/day by the World Bank), regardless of time or
place.
34.Mention two advantages of ‘Head-count Ratio’ index as a measure of
absolute poverty.
(i) It is simple and easy to understand—measuring the proportion of people
below the poverty line.
(ii) It provides a clear picture of poverty incidence and is widely used in
national and international comparisons.
35.Write down the mathematical expression for ‘Poverty-Gap Index’
(PGI).
PGI = (1/N) × Σ [(Z - Yi)/Z] for all Yi < Z
Where Z = poverty line, Yi = income of individual i below the line, and N =
total population.
It measures the depth of poverty by showing how far the poor are from the
poverty line.
36.Define the notion of ‘Human Poverty Index’ (HPI).
HPI, developed by UNDP, measures multidimensional poverty by
considering deprivation in basic human development areas: longevity,
 education, and standard of living. It goes beyond income to reflect broader
aspects of poverty.
37.Justify the values of Gini Coefficient as varies between zero and infinity.
The Gini Coefficient ranges from 0 (perfect equality) to 1 (perfect
inequality). A lower Gini suggests equitable income distribution, while a
value near 1 indicates severe income disparity. It helps evaluate inequality
trends across countries.
38.Give the diagrammatic definition of ‘Lorenz Curve’.
The Lorenz Curve is a graphical representation of income or wealth
distribution. It plots cumulative population percentages against cumulative
income, and the farther it is from the 45° line, the greater the inequality.
39.What is ‘Kuznets’ Hypothesis’ regarding development and inequality?
Kuznets hypothesized that in the early stages of economic development,
inequality increases due to industrialization and urbanization, but eventually
decreases as more people gain access to education and economic
opportunities—forming an inverted U-curve.
40.How do you analyze ‘gender inequality’?
Gender inequality is analyzed by comparing access to resources, education,
healthcare, political participation, and employment opportunities between
men and women. Indices like GDI and GII (Gender Inequality Index) are
commonly used.
41.How do you construct ‘Gender Development Index’ (GDI)?
GDI is constructed by adjusting the Human Development Index (HDI) to
account for gender disparities. It compares male and female achievements in
health (life expectancy), education (schooling), and income (GNI per capita).
42.What is a ‘political institution’? Give an example.
Political institutions are structures that define political behavior, authority,
and governance rules in a society. Examples include parliaments, electoral
commissions, and constitutions. They influence policymaking and the
distribution of power.
43.Mention two major characteristics of a political institution.
(i) They establish formal rules and procedures for governance and decision-
making.
(ii) They provide stability and legitimacy to the political system by
regulating power and authority.
44.Distinguish between a political institution and an economic institution.
Political institutions manage authority and public governance (e.g.,
parliament), while economic institutions organize production and
distribution (e.g., banks, markets). Political institutions affect policy-making;
economic ones shape economic behavior.
45.What do you mean by ‘corruption’ in an economy?
Corruption refers to the misuse of public office or power for personal gain,
 such as bribery, embezzlement, or favoritism. It undermines economic
efficiency, discourages investment, and erodes trust in institutions.
46.Give an example of ‘government failure’ with its justification.
An example of government failure is providing subsidies to inefficient public
enterprises. Such actions misallocate resources, increase fiscal burden, and
distort market incentives, leading to poor service delivery and inefficiency.
47.How many ‘indivisibilities’ do we find in the ‘Theory of Big Push’?
Mention.
There are three main indivisibilities: (i) In production (due to economies of
scale), (ii) In demand (to ensure sufficient market size), and (iii) In supply of
complementary industries or infrastructure.
48.Define the concept of ‘Balanced Growth Strategy’.
Balanced growth strategy advocates for simultaneous investment in various
sectors of the economy to generate mutual demand and avoid sectoral
bottlenecks. It aims to achieve comprehensive development through
intersectoral coordination.
49.Raise two major arguments against the ‘strategy of balanced growth’.
(i) It demands massive resources and planning capacity, which many
developing nations lack.
(ii) It may ignore comparative advantages, leading to inefficient allocation
and duplication of effort across sectors.
50.How do you define ‘human capital’? Argue.
Human capital is the stock of knowledge, skills, health, and abilities
possessed by individuals that enhances their productivity. Investing in
education and health boosts economic growth, innovation, and social
development by improving labor quality.