Write an article on poverty a visious circle in 150-200 words
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Most widely propagated explanation why poor underdeveloped countries have failed to grow economically is that they are trapped in vicious circles of poverty. These vicious circles of poverty operate both on the supply and demand sides of capital formation. Supply side of capital formation refers to saving required to accelerate capital formation in order to raise productivity and per capita income.
On the other hand, demand side of capital formation refers to inducement to invest (that is, investment demand) which depends on the size of market (i.e.; level of demand) which is small in the underdeveloped countries. Ragnar Nurkse in his now well-known work’ on underdeveloped countries attributed the persistence of poverty in them to these vicious circles of poverty and suggested policies to break these vicious circles. Both these vicious circles take poverty as their starting point.
ADVERTISEMENTS:
Following are the types of vicious circles of poverty:
1. Vicious Circle of Poverty (Supply-Side):
In the underdeveloped countries the rate of savings has been very low. In other words, these countries save a very small proportion of their current national income. In India the level of gross domestic savings has increased to about 30% of the national income in recent years only because of the stimulus provided by the planned development under the Five Year Plans. The level of savings in underdeveloped countries is very small mainly because their level of national income and per capita income is very low. As a result, much of the income is consumed and little is left for investment purposes.
Thus underdeveloped countries are caught in the vicious circle of poverty. Because of the low level of income the capacity to save is very small. Since the capacity to save is small, rate of saving and investment must be low. Investment being low leads to a lack of capital per head. Because there is small amount of capital per head, the productivity of the people or real income per head will be low. Thus, the vicious circle is complete. Vicious circle of poverty on the supply-side of capital formation is illustrated
On the other hand, demand side of capital formation refers to inducement to invest (that is, investment demand) which depends on the size of market (i.e.; level of demand) which is small in the underdeveloped countries. Ragnar Nurkse in his now well-known work’ on underdeveloped countries attributed the persistence of poverty in them to these vicious circles of poverty and suggested policies to break these vicious circles. Both these vicious circles take poverty as their starting point.
ADVERTISEMENTS:
Following are the types of vicious circles of poverty:
1. Vicious Circle of Poverty (Supply-Side):
In the underdeveloped countries the rate of savings has been very low. In other words, these countries save a very small proportion of their current national income. In India the level of gross domestic savings has increased to about 30% of the national income in recent years only because of the stimulus provided by the planned development under the Five Year Plans. The level of savings in underdeveloped countries is very small mainly because their level of national income and per capita income is very low. As a result, much of the income is consumed and little is left for investment purposes.
Thus underdeveloped countries are caught in the vicious circle of poverty. Because of the low level of income the capacity to save is very small. Since the capacity to save is small, rate of saving and investment must be low. Investment being low leads to a lack of capital per head. Because there is small amount of capital per head, the productivity of the people or real income per head will be low. Thus, the vicious circle is complete. Vicious circle of poverty on the supply-side of capital formation is illustrated
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