Q. The Economic Survey 2017-18 describes “low equilibrium trap”. In this context, which of the following is the correct definition of the same?
Answer:
It is a condition when a person is unable to generate enough income to invest or save and his earning is suitable for hand to mouth.
Notes: The Low Equilibrium Trap is an economic concept given by Richard R. Nelson. It is an economic situation in which the per capita income is too low to save or invest a part of it. The individuals in such economies live hand to mouth. Also the low level of investment results in a low rate of growth in national income. As per Richard Nelson, there are four reasons for “Low Equilibrium Trap” viz. a high correlation between the level of per-capita income and the rate of population growth; low propensity to direct additional per-capita income to increase in per-capita investment; scarcity of uncultivated arable land and Inefficient production methods.