The Concept of Vicious Circle of Poverty is Related to
By BYJU'S Exam Prep
Updated on: November 9th, 2023
Professor Ragnar Nurkse has given the concept of the vicious cycle of poverty. The vicious cycle of poverty states that low-income levels lead to low-income investment and savings. Therefore, there will be a low rate of investment, leading to a decrease in the productivity rate that will again lead to low income. Prof. Nurkse believes it indicates a cyclical constellation of factors that have the propensity to interact with one another in ways that maintain poverty in a nation.
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Concept of the Vicious Circle of Poverty
The phrase “vicious circle of poverty” alludes to the idea that poverty causes poverty. Impoverished people often stay poor and pass on their circumstances to subsequent generations. There are two levels in the vicious circle of poverty theory: supply level and demand level. Following a vicious cycle of low income, low savings, poor capital creation, low productivity, low output, and low income, the supply level declines.
Demand increases in the vicious cycle of “poor income, low purchasing power, low investment attractiveness, low production, and low income.” As reduced income will result in fewer savings and investments. Poor productivity will consequently result from low investment, which will again result in low revenue.
It suggests a circular constellation of factors that tend to operate and react with one another in a way that keeps a poor country in a condition of poverty, says Prof. Nurkse. To rectify this Vicious Circle of poverty given by Professor Ragnar Nurkse, there are two main solutions:
- The solution to the supply side of the vicious circle: An increase in savings and investments should be done.
- A solution to the demand-side vicious circle: The extent of the market should be widened so that people invest more.
Summary:
The Concept of Vicious Circle of Poverty is Related to
Vicious Circle of poverty was given by Professor Ragnar Nurkse in 1953. He demonstrates a low level of economic activity. It consists of two levels, supply level, and demand level. Low investment rates will cause productivity to decline, further lowering income levels. The phrase “vicious circle of poverty” refers to the idea that poverty causes poverty. People who are impoverished often stay poor and pass on their circumstances to subsequent generations.
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