1. WHO INTRODUCED THE MARGINAL PRODUCTIVITY THEORY OF DISTRIBUTION

Answer: J.B.CLERK

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MCQ-> I suggest that the essential character of the Trade Cycle and, especially, the regularity of time-sequence and of duration which justifies us in calling it a cycle, is mainly due to the way in which the marginal efficiency of capital fluctuates. The Trade Cycle is best regarded, I think, as being occasioned by a cyclical change in the marginal efficiency of capital, though complicated and often aggravated by associated changes in the other significant short period variables of the economic system.By a cyclical movement we mean that as the system progresses in, e.g. the upward direction, the forces propelling it upwards at first gather force and have a cumulative effect on one another but gradually lose their strength until at a certain point they tend to be replaced by forces operating in the opposite direction; which in turn gather force for a time and accentuate one another, until they too, having reached their maximum development, wane and give place to their opposite. We do not, however, merely mean by a cyclical movement that upward and downward tendencies, once started, do not persist for ever in the same direction but are ultimately reversed. We mean also that there is some recognizable degree of regularity in the time-sequence and duration of the upward and downward movements. There is, however, another characteristic of what we call the Trade Cycle which our explanation must cover if it is to be adequate; namely, the phenomenon of the ‘crisis’ the fact that the substitution of a downward for an upward tendency often takes place suddenly and violently, whereas there is, as a rule, no such sharp turning-point when an upward is substituted for a downward tendency. Any fluctuation in investment not offset by a corresponding change in the propensity to consume will, of course, result in a fluctuation in employment. Since, therefore, the volume of investment is subject to highly complex influences, it is highly improbable that all fluctuations either in investment itself or in the marginal efficiency of capital will be of a cyclical character.We have seen above that the marginal efficiency of capital depends, not only on the existing abundance or scarcity of capital-goods and the current cost of production of capital- goods, but also on current expectations as to the future yield of capital-goods. In the case of durable assets it is, therefore, natural and reasonable that expectations of the future should play a dominant part in determining the scale on which new investment is deemed advisable. But, as we have seen, the basis for such expectations is very precarious. Being based on shifting and unreliable evidence, they are subject to sudden and violent changes. Now, we have been accustomed in explaining the ‘crisis’ to lay stress on the rising tendency of the rate of interest under the influence of the increased demand for money both for trade and speculative purposes. At times this factor may certainly play an aggravating and, occasionally perhaps, an initiating part. But I suggest that a more typical, and often the predominant, explanation of the crisis is, not primarily a rise in the rate of interest, but a sudden collapse in the marginal efficiency of capital. The later stages of the boom are characterized by optimistic expectations as to the future yield of capital goods sufficiently strong to offset their growing abundance and their rising costs of production and, probably, a rise in the rate of interest also. It is of the nature of organized investment markets, under the influence of purchasers largely ignorant of what they are buying and of speculators who are more concerned with forecasting the next shift of market sentiment than with a reasonable estimate of the future yield of capital-assets, that, when disillusion falls upon an over-optimistic and over- bought market, it should fall with sudden and even catastrophic force. Moreover, the dismay and uncertainty as to the future which accompanies a collapse in the marginal efficiency of capital naturally precipitates a sharp increase in liquidity-preference and hence a rise in the rate of interest. Thus the fact that a collapse in the marginal efficiency of capital tends to be associated with a rise in the rate of interest may seriously aggravate the decline in investment. But the essence of the situation is to be found, nevertheless, in the collapse in the marginal efficiency of capital, particularly in the case of those types of capital which have been contributing most to the previous phase of heavy new investment. Liquidity preference, except those manifestations of it which are associated with increasing trade and speculation, does not increase until after the collapse in the marginal efficiency of capital. It is this, indeed, which renders the slump so intractable. Which of the following does not describe the features of cyclical movement?
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MCQ-> Our propensity to look out for regularities, and to impose laws upon nature, leads to the psychological phenomenon of dogmatic thinking or, more generally, dogmatic behaviour: we expect regularities everywhere and attempt to find them even where there are none; events which do not yield to these attempts we are inclined to treat as a kind of `background noise’; and we stick to our expectations even when they are inadequate and we ought to accept defeat. This dogmatism is to some extent necessary. It is demanded by a situation which can only be dealt with by forcing our conjectures upon the world. Moreover, this dogmatism allows us to approach a good theory in stages, by way of approximations: if we accept defeat too easily, we may prevent ourselves from finding that we were very nearly right.It is clear that this dogmatic attitude; which makes us stick to our first impressions, is indicative of a strong belief; while a critical attitude, which is ready to modify its tenets, which admits doubt and demands tests, is indicative of a weaker belief. Now according to Hume’s theory, and to the popular theory, the strength of a belief should be a product of repetition; thus it should always grow with experience, and always be greater in less primitive persons. But dogmatic thinking, an uncontrolled wish to impose regularities, a manifest pleasure in rites and in repetition as such, is characteristic of primitives and children; and increasing experience and maturity sometimes create an attitude of caution and criticism rather than of dogmatism.My logical criticism of Hume’s psychological theory, and the considerations connected with it, may seem a little removed from the field of the philosophy of science. But the distinction between dogmatic and critical thinking, or the dogmatic and the critical attitude, brings us right back to our central problem. For the dogmatic attitude is clearly related to the tendency to verify our laws and schemata by seeking to apply them and to confirm them, even to the point of neglecting refutations, whereas the critical attitude is one of readiness to change them - to test them; to refute them; to falsify them, if possible. This suggests that we may identify the critical attitude with the scientific attitude, and the dogmatic attitude with the one which we have described as pseudo-scientific. It further suggests that genetically speaking the pseudo-scientific attitude is more primitive than, and prior to, the scientific attitude: that it is a pre-scientific attitude. And this primitivity or priority also has its logical aspect. For the critical attitude is not so much opposed to the dogmatic attitude as super-imposed upon it: criticism must be directed against existing and influential beliefs in need of critical revision – in other words, dogmatic beliefs. A critical attitude needs for its raw material, as it were, theories or beliefs which are held more or less dogmatically.Thus, science must begin with myths, and with the criticism of myths; neither with the collection of observations, nor with the invention of experiments, but with the critical discussion of myths, and of magical techniques and practices. The scientific tradition is distinguished from the pre-scientific tradition in having two layers. Like the latter, it passes on its theories; but it also passes on a critical attitude towards them. The theories are passed on, not as dogmas, but rather with the challenge to discuss them and improve upon them.The critical attitude, the tradition of free discussion of theories with the aim of discovering their weak spots so that they may be improved upon, is the attitude of reasonableness, of rationality. From the point of view here developed, all laws, all theories, remain essentially tentative, or conjectural, or hypothetical, even when we feel unable to doubt them any longer. Before a theory has been refuted we can never know in what way it may have to be modified.In the context of science, according to the passage, the interaction of dogmatic beliefs and critical attitude can be best described as:
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MCQ-> The income disparity in the new India is massive: 36 billionaires in India and 800 million people living on less than $2 a day. The challenge for achieving inclusive growth relates to the revival of agriculture. Farming is becoming a non-viable activity. A confluence of factors, from poor rainfall to the new availability of consumer goods which consume much of Indian familie's incomes, has driven many farmers into crushing debt. The agriculture sector has many problems with a growth rate of less than 2% in the last decade. Further scope for increase in net sown area is limited. Disparity in productivity across regions and crops has persisted. Far from benefiting from the economic boom, many complain that banks don't offer the rural poor credit, forcing them to turn to greedy money-lenders, who typically charge up to 20% interest on a four-month loan. Healthcare and education costs have risen dramatically, while the global price of cotton has become depressed, largely due to the billions of dollars in subsidies Washington hands out to U.S. farmers. The approach to the revival of Indian agriculture seems to be incremental, rather than a holistic strategy. It is important to stress that growth and equity should be pursued simultaneously rather than following the 'growth first and equity next' approach. What are the challenges for achieving 4% growth and equity in agriculture? Policy makers like the National Commission on Farmers mention cost reduction in agriculture as important to compete in a globalised world. The most important problem for the farmers is output price fluctuations. There is a big gap between producer prices and consumer prices. In order to protect farmers from National and international price volatility, a price stabilization fund is needed. The supply and demand side constraints have to be removed to raise growth. The support systems have to be tuned to improve productivity and incomes of farmers with emphasis on small and marginal farmers and dry land areas. One of the differences between the green revolution in the 1960s / 70s and the present 'second green revolution' is that risk is higher in the latter approach as it has to concentrate more on dry-land areas. Trade liberalisation has also raised the risk and uncertainty. Thus, policymakers have to keep in mind the increasing risk in agriculture. Agriculture policies have to be gender sensitive too since the share of women is increasing. The Government is aware that the crop sector may not be able to grow at 4% per annum but horticulture and allied activities like dairying, poultry and fisheries have to grow at the rate 6 % to 7 % to achieve 4% growth in agriculture. Investment in irrigation and rural infrastructure is important for agricultural growth. It is known that public investment in agriculture is lower than the requirements needed for achieving 4% growth. Bharat Nirman Programme is in the right direction but the progress has to be much fasterWhat does the author view as a challenge for achieving inclusive growth?
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