Economics • Indian EconomyHard
What does the 'Kuznets Curve' hypothesize regarding the relationship between economic growth and income inequality in developing nations?
A. Income inequality increases during the early stages of industrialization and economic development, and subsequently decreases after reaching a threshold✓ Correct Answer
B. Income inequality decreases monotonically as per capita gross domestic product rises across all developmental phases
C. Economic growth has no statistically significant correlation with income distribution patterns in agrarian economies
D. Income inequality remains constant during structural transformation and rises sharply only in post-industrial service economies
💡 Solution & Explanation
Simon Kuznets hypothesized that economic inequality follows an inverted U-shaped curve, worsening during early economic development as labor shifts from agriculture to higher-productivity industry, and improving later. Distractors claim a linear decrease or zero correlation, ignoring historical structural dynamics. This hypothesis emphasizes the role of targeted social security policies during transitional phases of growth. Empirical validity across nations varies depending on fiscal redistribution mechanisms adopted by governments.
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