Step 1: Recall the definition of degree of a differential equation
The degree of a differential equation is defined as the power of the highest order derivative present in the equation, provided the equation is polynomial in all derivatives.
Step 2: Identify the highest order derivative
The given differential equation is:
\[xy \frac{d^2y}{dx^2} + x \left( \frac{dy}{dx} \right)^2 - y \left( \frac{dy}{dx} \right) = 2\]
The highest order derivative present is \(\frac{d^2y}{dx^2}\) (second order derivative).
Step 3: Check if the equation is polynomial in derivatives
The equation contains:
- \(\frac{d^2y}{dx^2}\) with power 1
- \(\left( \frac{dy}{dx} \right)^2\) with power 2
- \(\frac{dy}{dx}\) with power 1
All derivatives appear as polynomial terms. The equation is polynomial in all derivatives.
Step 4: Find the degree
The highest order derivative is \(\frac{d^2y}{dx^2}\) and its power is 1.
Therefore, the degree of the differential equation is:
\[
\boxed{1}
\]
Note: The degree is 1 even though the equation contains \(\left( \frac{dy}{dx} \right)^2\) because the degree is determined by the power of the highest order derivative, not the lower order derivatives.