Question

How would you break the vicious circle of poverty?

Answer 1

Breaking the Vicious Circle of Poverty :

1. The vicious circle of poverty is associated with the low rate of saving and investment on the supply side.
2. In UDCs the rate of investment and capital formation can be stepped up without a reduction in consumption. For this, the marginal rate of savings is to be greater than the average rate of savings.
3. To break the vicious circle on the demand side, Nurkse suggested the strategy of balanced growth.
4. If the investment is made in several industries simultaneously the workers employed in various industries will become consumers of each other’s products and will create demand for one another.
5. The balanced growth i.e. simultaneous investment in a large number of industries creates mutual demand. Thus, through the strategy of balanced growth, a vicious circle of poverty operating on the demand side of capital formation can be broken.