1. Meaning of Economic Development
Ans:- The concept of economic development is a dynamic and multi-dimensional. This concept is changing with the passage of time. This concept is related with developing countries because these countries are still suffering from poverty, hunger, unemployment and inequality, inadequate, socio economic infrastructure etc. but developed countries have no such problems because they have already solved such problem.
The term economic development is used as synonymous with economic growth. However, they both are different from one another. A countries economic growth means increase in country’s GDP.
On the other hand, a country’s economic development means increase in citizen’s quantity of life. Quality of life is measured using human development index (literacy rate, life expectancy and poverty rates). Thus economic development is the growth of standard of living of a country’s people from a low income country to a high income country.
2. What are the characteristics of developing countries?
Ans:- The main characteristics of developing countries are explained below:
i) Low per capita income:- The per capita income of developing countries like Nepal is very low. The per capita income of Nepal is us dollar 766 which is very low as compared to it’s neighboring like India, china and Pakistan.
ii) Mass poverty:- There is mass poverty in developing countries like Nepal. About 22% of total population of Nepal is below poverty line. Mass poverty is due to low per capita income and unequal distribution of income.
iii) Excessive dependence on agriculture sector:- agriculture sector is regarded as the backbone of Nepalese economy. About 66% of total active population of Nepal is engaged in agriculture farming. About 32% of total GDP of Nepal has contributed by agriculture sector.
iv) Underutilization of natural resources:- Nepal is very rich in natural resources like water resources, forest resources and mineral resources. There is no proper utilization of these natural resources. Nepal has about 6000 rivers which have potentiality of generating 83000 Megawatt of hydroelectricity, but Nepal has able to generate only 830 megawatt hydroelectricity. This data shows that there is underutilization of natural resources.
v) High trade deficit:- Trade deficit occurs when the value of countries import is greater than the value of countries export. And in context of Nepal, there is high trade deficit because Nepal imports more and exports less. Therefore, Nepal should produce those goods and services which have comparative and competitive advantage.
vi) Dualistic and mixed economic system:- Dualistic economic means both traditional and modern characteristics prevail in the economy. The urban sector is characterized by non- agricultural sector while rural area is characterized by agricultural sector.
On the other hand, mixed economy is an economy where there is existence of both capitalism (private sector) and socialism (public sector). In context of Nepal, it has mixed economy system. For example, Nepal electricity authority, Nepal oil corporation and controlled by government.
vii) Rapid population growth:- there is rapid population growth in Nepal. According to population census, population growth rate of Nepal is 1.4%, this is higher than other developed countries. The main reason for rapid population growth in Nepal is illiteracy early marriage, polygamy etc.
viii) Remittance economy:- There is lack of employment opportunity in Nepal. Therefore, large number of Nepalese youths has migrated to foreign country in search of job. They have gone especially to Malaysia, Qatar, and Dubai etc. The money earned by these peoples are sent to Nepal in the form of remittance. Remittance helps to improve the living standard of people and reduce poverty.
3. Explain the indicators of economic development.
Ans:- An economic indicator is a statistic that measures economic activities such as unemployment rate, industrial production, literacy rate, standard of living etc. Economic indicators help to analyze the economic performance and prediction of future performance of a country. The measures indicators of economic development are explained below:
i) Per capita income:- It is the average income of each individual in an economy. It is obtained by dividing national income by total population. Economic development is achieve only when the increase in national income is greater than the increase in population growth.
If there is high income inequality then per capita income is not a satisfactory indicator of economic development.
ii) Physical quantity of life index:- It consists of three indicators, they are:
a) Life expectancy
b) Infant mortality rate
c) Literacy rate
It is considered as a native as well as good indicator of economic development. The value of PQLI is measured in a scale of 0 to 100. If people leave longer and are literate, PQLI will be high. If it’s value process 50+, the country is supposed to be developed and if the value life below 50, the nation supposed to be developing.
iii) Human development index:- Human development index was introduce by UNITED NATIONS DEVELOPMENT (UNDP) in 1990. According to this criteria economic development is evaluated on the basis of following:
a) Per capita income
b) Literacy rate
c) Life expectancy
It’s value ranges from 0 to 1. Value closer to 0 shows low economic development. And value closer to 1 shows high economic development. The HDI for Nepal and Norbey is 0.574 and 0.953 respectively for a year 2018.
iv) Rise in factor productivity:- The economy growth depends on the increase in factor inputs and technological progress that is taking place is an economy. Improvement in technology makes factor inputs more productive. Therefore, economic development depends upon growth in resources (i.e. factor inputs such as land, labor, capital etc.)
v) Rise in standard of living:- The main objectives of development is to provide better life to the people. It refers to increase in average consumption level of individual and society. Therefore, rise in standard of living is also an economic indicator which suggests that economic development is achieved in an economy.
vi) Basic human needs:- This criteria of economic development was developed by world bank. According to these criteria, those countries which are unable to fulfill basic needs are developing countries otherwise they are supposed as developed country.
vii) Poverty alleviation and inequality reduction:- As a nation developed, poverty must be reduced and the gap between rich and poor must be reduced along with each. If a nation has able to reduce the poverty and gap between rich and poor, it can be regarded as developed otherwise developing.
4. Write the meaning of capital formation process.
Ans:- Capital formation is the process of increasing the stock of real capital in the economy. Capital formation involves making more and more capital goods. It is defined in both narrow and wider sense. In the narrow sense, capital formation means the expenditure made on fixed capital such as plants, machinery, tools etc.
In the broader sense, capital formation is the investment in human capital along with material capital.
The economic development of a country significantly depends upon the availability of capital stock with it. Higher rate of capital formation enables the economy to produce a larger volume of goods and services, which in turned increases the national income.
5. Explain the process of capital formation.
Ans:- The process of capital formation are explained below:
i) Creation of saving:- Saving is the first stage of the process of capital formation. Saving is that part of income which is not consumed. Saving depends upon income. As the income increases saving also increases. However, the amount of saving or the creation of saving depends upon various factors such as income, ability to save and willingness to save.
ii) Ability to save:- Higher the income, higher will be saving. Saving capacity depends upon reducing the unnecessary consumption. So if saving capacity is large, there will be more capital formation.
iii) Willingness to save:- Willingness to a desire of people to save out of their income. So if people willingness to save increases, it helps to increase the rate of capital formation.
iv) Mobilization of saving:- Only saving is not enough for capital formation the mobilization of saving means transferring of saving to business or entrepreneurs who require them for investment. The bank, insurance companies, financial institution etc. are the act for the mobilization of saving. These institutions accept the saving and give loan to the investor.
v) Investment of saving:- For effective capital formation the saving must be invested in productive sector such as agriculture, manufacturing industries, education, health, communication, banking etc. so as to create new capital.
6. Write down the meaning of unemployment. What are the types of unemployment?
Ans:- Unemployment is the condition that occurs when a person is actively searching for employment is unable to find work. In other words, unemployment is the situation where the person who are able to work and willing to work, fails to secure work or activity which gives them income or means livelihood.
Again, if there is engagement in some occupation doesn’t necessarily mean absence of unemployment. People who are partially employed or engaged in inferior jobs, though they can find better jobs are not adequately employed.
# Types of Unemployment
i) Voluntary unemployment:- Voluntary unemployment occurs when a person does not want to get employed even though he is able to work.
ii) Involuntary unemployment:- Involuntary unemployment occurs when the individuals are able, willing and searching the job but they are unable to find the job. The various of involuntary unemployment are explained below:
iii) Frictional unemployment:- This type of unemployment occurs due to the people who try to switch over from one job to the other. There are some people who always look out for better job. The main cause of frictional unemployment is imperfect information regarding job vacancy.
iv) Seasonal unemployment:- Seasonal unemployment is defined as the situation when people are not working because their job exists only at some times of the year. Agricultural and construction workers are the example of this type of unemployment.
v) Structural unemployment:- Structural unemployment occurs when people are unemployed because of capital, labor, substitution, which reduces the demand for labor. One of it’s type is technological unemployment.
vi) Cyclical unemployment:- Cyclical unemployment occurs when there is decrease in aggregate demand. When an economy is passing through economic recession, the purchasing power of people decreases. As a result there is fall in aggregate demand for goods and the demand for labor also decreases with it.
vii) Classical unemployment:- It is a form of unemployment that occurs when real wages are forced above the market wage rate. In other words, classical unemployment is caused when wages rates are too high.
viii) Disguised unemployment:- Such types of unemployment exist in agriculture, seasonal work, etc.