Answer any two questions from this section.

1. Derive the fundamental equation of the Solow model. Explain the meaning of the symbols used in the derivation and explain the assumptions used at each stage of the derivation clearly.

2. Explain why in the Solow model a permanent increase in the economy's saving rate has only a temporary effect on the economy's growth rate.

3. Explain what is meant by a Lorenz Curve. Suppose in an economy the distribution of income is such that half of the population do not have any income and the total income is distributed equally among the remaining half of the population. Draw the income Lorenz Curve for the economy. Explain your diagram.

4. Discuss the role played by innovations in Schumpeter's theory of capitalist development.

Answer any five questions from this section.

5. Suppose in an economy the poverty line is 200 currency units, the number of people with consumption expenditure below the poverty line is 1 crore, the average consumption expenditure of these people is 150 currency units, and the total population is 2.5 crore. Calculate the poverty gap index for this economy.

6. What is meant by the expression 'Government failure'? Describe the possible reasons for government failure in an economy.

7. Explain the method for calculation of The Physical Quality of Life Index for an economy.

8. Explain the concepts of 'Effective Capital' and 'Effective Labour' in an aggregate production function.

9. What are the factors which determine the rate of growth of output in the AK model? Explain.

10. What is meant by an Optimal Growth Model? Discuss how consumption and saving are assumed to be determined in anyone of the optimal growth models you have discussed in this course.

11. Critically discuss Rosenstein Rodan's 'Big Push' theory of development.

12. Explain how network externalities and complementarities may lead to path dependence in the process of economic development.