Which of the following describes the vicious circle of poverty?
A) Government spending for public goods is inﬂationary, and this undermines incentives to save and invest.
B) Higher incomes increase consumption at the expense of capital accumulation, which causes income to fall.
C) Low per capita incomes cause low levels of saving and investment, which mean low productivity and therefore low incomes.
D) A growing national income increases the demand for money, which increases the interest rate and reduces investment.

Question

Quizplus · Accepted Answer

The vicious circle of poverty refers to the idea that low per capita incomes lead to low levels of saving and investment, which in turn lead to low productivity and therefore low incomes, perpetuating the cycle of poverty. Option C describes this cycle accurately.

Which of the Following Describes the Vicious Circle of Poverty