Despite being a high saving economy, capital formation may not result in significant increase in output due to
- A.weak administrative machinery
- B.illiteracy
- C.high population density
- D.high capital-output ratio
Correct answer
Explanation
The correct answer is D, high capital-output ratio. When the capital-output ratio is high, a large amount of investment produces only a small rise in output.
The capital-output ratio, or incremental capital-output ratio (ICOR), tells how many units of capital are needed to produce one extra unit of output. In the Harrod-Domar model, the growth rate equals the saving rate divided by the capital-output ratio. So an economy that saves and invests a lot can still grow slowly if its ICOR is high, because the capital is being used inefficiently. A lower ICOR means more output from the same investment.
A is wrong because weak administration may slow growth but is not the direct link between capital and output the question asks about. B is wrong because illiteracy affects labour quality, not the efficiency of capital as such. C is wrong because population density does not decide how much output a unit of capital yields.
Exam tip: Growth rate = saving rate ÷ ICOR; a high ICOR means inefficient use of capital.
Practice Questions
View allNormally, there will not be a shift in the demand curve when
- A.price of a commodity falls
- B.consumers want to buy more at any given price
- C.average income rises
- D.population grows
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A change in the good's own price moves the buyer along the same demand curve; it does not shift the curve.
Read the full explanation →Which one of the following terms denotes the inputs in terms of tools, machines, buildings, raw materials and money in hand required at any stage of production?
- A.Fixed capital
- B.Working capital
- C.Physical capital
- D.Human capital
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Physical capital is the variety of inputs, such as tools, machines, buildings, raw materials and money in hand, needed at every stage of production.
Read the full explanation →The Multidimensional Poverty Index (MPI) is measured by:
- A.Measuring each person's overlapping deprivations across the indicators in the health, education and standard of living dimensions
- B.Measuring each person's separate efficiencies across the indicators in the wealth, income and standard of living dimensions
- C.Measuring each person's poverty on the indicators of health, happiness and ownership of vehicles
- D.Measuring inequalities and deprivations in respect of wealth, income and standard of living dimensions
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The MPI measures the overlapping deprivations each person faces across indicators of health, education and standard of living. The global MPI was developed in 2010 by the Oxford Poverty and Human Development Initiative and the UNDP.
Read the full explanation →Which of the following statements with respect to the Gender Inequality Index (GII) is/are correct?
1. GII reflects gender-based disadvantage in work participation, property and income dimensions.
2. GII reflects gender-based disadvantage in reproductive health, empowerment and the labour market dimensions.
3. The value of GII ranges from 0 to 1, with a GII of 0 indicating women and men faring equally in all dimensions.
Select the answer using the codes given below :
- A.1 only
- B.3 only
- C.2 and 3 only
- D.1, 2 and 3
Show answer
The GII measures gender gaps in reproductive health, empowerment and the labour market, and its value runs from 0 to 1.
Read the full explanation →With reference to the Indian economy, consider the following statements:
1. 'Commercial Paper' is a short-term unsecured promissory note.
2. 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.
3. 'Call Money' is a short-term finance used for interbank transactions.
4. 'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.
Which of the statements given above is/are correct?
- A.1 and 2 only
- B.4 only
- C.1 and 3 only
- D.2, 3 and 4 only
Show answer
Commercial paper and call money are correctly described; the statements on certificates of deposit and zero-coupon bonds are wrong. Commercial paper is an unsecured promissory note issued by companies to raise short-term funds, usually for 7 days to one year.
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