Poverty Trap

Question 1

Types of Poverty Traps

Answer 1

1) Friction Driven

2) Scarcity Driven

Question 2

What does a friction driven poverty trap require?

Answer 2

1) Credit market imperfections

2) Technology non-convexities

Question 3

Types of Frictions

Answer 3

1) Credit Market
2) Technology non-convexities
3) Human Capital
4) Nutritional

Question 4

Assumption behind Friction-driven poverty traps

Answer 4

Those in poverty are poor but rational

Question 5

Assumption behind Scarcity-driven poverty traps

Answer 5

Those in poverty are poor but behavioural

Question 6

Policy to fix poverty trap

Answer 6

1) Remove frictions (loans, credit, insurance, savings, training)
2) Lump-sum transfers