Vicious Circle Of Poverty

•             Prof Nurkse found the problem of capital formation with the problem of vicious circle of poverty in underdeveloped countries.

•             According to Nurkse vicious circle of the poverty is “ circular constellation of forces tending to act and react upon each other in a such a way as to keep a poor country in the state of poverty”

•             In other words, a vicious circle of poverty is when-

a)              Poverty serves as the cause of poverty

b)             An activities whose beginning is poverty and end is poverty

c)               A country is poor because it is poor.

d)             Poverty breeds itself

e)              Poverty is the result of poverty.

There are two aspects of vicious circle of poverty -

1. Demand Side (due to low demand of output)

2. Supply Side (due to low saving)

Demand Side

REASON :

On the demand side investment may be low, because of small buying power(LOW DEMAND) of the people, it is due to their small real income, which is again due to low productivity. The level of productivity however is the result of the small amount of the capital used in production which in turn may be caused due to small investment IN SMALL SIZE MARKET hence this circle continuously exist.

Supply Side

REASON :

On supply side there is low saving due to low level of income . The low income is due to the low level of productivity because of lack of capital available to invest. Low capital is due to low saving, hence the circle is completed and continuously existed.

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