GS PrelimsEconomyEconomic Growth2013

Economic growth in country X will necessarily have to occur if

A

there is technical progress in the world economy

B

there is population growth in X

C

there is capital formation in X

D

the volume of trade grows in the world economy

Correct Answer: Option C

Explanation

1. Economic growth is typically defined as an increase in the production of goods and services in an economy over time, often measured by the percentage increase in real Gross Domestic Product (GDP). 2. For economic growth to occur, an economy generally needs to increase its productive capacity or utilize existing capacity more efficiently. 3. Option (A) is not necessary. While technical progress in the world economy can benefit country X, country X might not adopt or benefit from it, or other factors might hinder its growth. 4. Option (B) is not necessary. Population growth can increase the labor supply, but if not accompanied by sufficient capital or technological progress, it might lead to lower per capita income and potentially hinder overall economic growth (Malthusian concerns) or simply dilute growth. 5. Option (C) describes capital formation (investment in physical capital like machinery, infrastructure, etc.). Capital formation directly increases the economy's productive capacity. According to most standard economic growth models (like the Solow model), capital formation is a fundamental driver of economic growth. While other factors (like technology, human capital) are also crucial for sustained growth, an increase in the capital stock is a necessary condition for increasing output potential. Therefore, if there is capital formation in X, it implies an increase in productive capacity, which necessarily allows for (though doesn't absolutely guarantee, depending on utilization) an increase in output, hence economic growth. 6. Option (D) is not necessary. Growth in world trade can provide opportunities, but country X's growth depends on its own production and participation in that trade.

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