UPSC Prelims 2018 · GS Paper I
Question 50: Economy and Social Development
Despite being a high saving economy, capital formation may not result in significant increase in output due to
AnswerUPSC’s answer is (d).
Even where saving and investment rates are high, output rises only as much as each unit of capital can produce. A high capital-output ratio means more capital is needed to produce one extra unit of output, so a given amount of investment brings a smaller increase in output. Weak administration, illiteracy and population density can slow growth, but the direct link between capital formation and output is the capital-output ratio.
Why each option is right or wrong
- (a) A general constraint, but not the direct link between investment and output.
- (b) Likewise it affects growth only indirectly.
- (c) Population density has no direct bearing on the productivity of capital.
- (d) Right: a high capital-output ratio means more capital for each unit of output.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2018, General Studies Paper I, Series A. The paper on upsc.gov.in.