Q. Consider the following statements regarding the Creative destruction:
1. It refers to the incessant product and process innovation mechanism by which new production units replace outdated ones.
2. Over the long run, the process of creative destruction accounts for over 50 per cent of productivity growth.
3. It was coined by Adam Smith.
Which of the statements given above is/are correct?

[A] 1 only

[B] 1 and 2 only

[C] 2 and 3 only

[D] 1, 2 and 3

Answer: B
Notes:

Creative destruction refers to the incessant product and process innovation mechanism by which new production units replace outdated ones.  

  • This restructuring process permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets.  
  • Over the long run, the process of creative destruction accounts for over 50 per cent of productivity growth.  
  • At business cycle frequency, restructuring typically declines during recessions, and this add a significant cost to downturns.  
  • Obstacles to the process of creative destruction can have severe short- and long-run macroeconomic consequences.  
  • It was coined by Joseph Schumpeter (1942), who considered it ‘the essential fact about capitalism’. 

Source: Economic Survey