question_answer

Direction: Read the passage carefully and answer the questions given below it. Certain words/ phrases have been given in bold to help you locate them while answering some of the questions.

Adam Smith, Karl Marx, John Maynard Keynes, please make way. The current debate in the 21st century among economists is not about growth, capital accumulation or business cycles. The focus in today's economic theory is on growing inequality across the world.

The French economist, Thomas Piketty, burst on the world of economic theory in 2014 with his magnum opus, Capital in the 21st Century. Analysing data from 20 countries in the past three centuries, Piketty showed that we have not modified the deep structures of capital and inequality as much as we had thought in the optimistic decades following World War II.

There is a tendency for returns on capital to exceed the rate of economic growth. It threatens to generate extreme inequalities that stir discontent and undermine democratic values.

Analysing the forces of convergence and divergence, he showed the rise in income inequality in the US between 1910 and 2010. He tried to show that the rate of return on capital remains significantly above the growth rate for an extended period of time, leading to a high risk of divergence in the distribution of wealth.

He wrote the fundamental principle of inequality as r > g, where r stands for the average rate of return on capital including profits, dividends, interest, rents and other income from capital, expressed as a percentage of its total value, and g stands for the rate of growth of the economy, ie the annual increase in income or output.

The president of the American Economic Association, Simon Kuznets, propounded a theory in 1955 trying to show that inequality can be expected to follow a 'bell curve'. It should first increase and then decrease over the course of industrialisation and economic development.

Inequality automatically decreases as the larger and larger parts of the population partake of the fruits of economic growth.

Thomas Piketty's model showed those assumptions to be historically untrue. According to him, the more perfect the capital market, the more likely r is to be >g.

Piketty showed that inequality, which was on the wane between 1930 and 1970, has risen sharply back towards the high levels of the industrial revolution. And now comes Branco Milanovic from the City University of New York.

In his latest book. Global Inequality-A New Approach for the Age of Globalization, economist Branco Milanovic has taken on both Piketty and Kuznets. Kuznets had argued that inequality is low at low levels of development, rises during industrialisation, and falls as countries reach economic maturity.

According to Kuznets, high inequality is the temporary side-effect of the developmental process.

Piketty suggested that high levels of inequality are the natural state of modem economies. Milanovic explains that both are mistaken.

Inequality, according to him, has tended to flow in cycles, what he describes as "Kuznets waves". With industrialisation, the Kuznets wave changed: to technology, openness and policy (TOP as he abbreviates it).

As workers were reallocated from farms to factories, from rural to urban areas, average income and inequality soared. Technological progress and trade worked together to squeeze workers. The declining economic power of the workers is compounded by lost political power as the very rich use their fortunes to influence candidates and elections (crony capitalism?).

The prognosis is that world inequality will keep rising. Rich economies today stagnate as they struggle to find places to earn good returns on their piles of wealth.

He predicts that emerging economies will probably continue on their paths. Rising inequality triggers countervailing social dislocations. Can governments avoid a crisis of high inequality?

 

Direction: Choose the word which is MOST OPPOSITE in meaning of the word printed in bold as used in the passage.

Stagnate

A)  decays                         

B)  declines      

C)  stalls                           

D)  grows       

E)  stand still