Given below are two statements: Statement I: Low-income countries (LICs) and lower-middle-income countries (LMICs) have high prospective growth rates and high marginal productivities of capital. Statement II: They should borrow, and borrow heavily, in order to finance a broad-based increase in investments on human capital (education and health), public infrastructure (power, digital, water and sanitation, transport) and environmental protection. In light of the above statements, choose the most appropriate answer from the options given below:
Question:
Given below are two statements: Statement I: Low-income countries (LICs) and lower-middle-income countries (LMICs) have high prospective growth rates and high marginal productivities of capital. Statement II: They should borrow, and borrow heavily, in order to finance a broad-based increase in investments on human capital (education and health), public infrastructure (power, digital, water and sanitation, transport) and environmental protection. In light of the above statements, choose the most appropriate answer from the options given below:
Given below are two statements: Statement I: Low-income countries (LICs) and lower-middle-income countries (LMICs) have high prospective growth rates and high marginal productivities of capital. Statement II: They should borrow, and borrow heavily, in order to finance a broad-based increase in investments on human capital (education and health), public infrastructure (power, digital, water and sanitation, transport) and environmental protection. In light of the above statements, choose the most appropriate answer from the options given below:
Options
Answer: (1) Both Statement I and Statement II are correct
Explanation:
Both statements reflect mainstream development economics thinking. Statement I is correct: LICs and LMICs generally have higher potential/prospective growth rates than advanced economies (convergence theory) and higher marginal productivities of capital due to capital scarcity. Statement II is correct: Development economists and institutions like IMF and World Bank have argued that these countries should leverage borrowing to invest in human capital, infrastructure, and environment — provided debt sustainability is maintained — as the returns on such investments exceed borrowing costs.
Explanation:
Both statements reflect mainstream development economics thinking. Statement I is correct: LICs and LMICs generally have higher potential/prospective growth rates than advanced economies (convergence theory) and higher marginal productivities of capital due to capital scarcity. Statement II is correct: Development economists and institutions like IMF and World Bank have argued that these countries should leverage borrowing to invest in human capital, infrastructure, and environment — provided debt sustainability is maintained — as the returns on such investments exceed borrowing costs.
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