Multiple Choice Questions on The Gross Capital Formation will mandatorily increase if 1 Gross Domestic Savings increases 2 Gross ........... for CDS Exam Preparation

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Multiple Choice Questions

The Gross Capital Formation will mandatorily increase if 1 Gross Domestic Savings increases 2 Gross ...........

Indian Economy (CDS) Growth and development
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    The Gross Capital Formation will mandatorily increase if:

    1. Gross Domestic Savings increases

    2. Gross Domestic Consumption increases

    3. Gross Domestic Product increases

    Select the correct answer using the codes given below.

    1 only

    Incorrect Answer

    1 and 2 only

    Incorrect Answer

    1 and 3 only

    Incorrect Answer

    None of the above

    Correct Answer
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    Explanation:
    • Capital formation is a term used to describe the net capital accumulation during an accounting period for a particular country.
    • The term refers to additions of capital goods, such as equipment, tools, transportation assets, and electricity. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income.
    • Producing more goods and services can lead to an increase in national income levels. To accumulate additional capital, a country needs to generate savings and investments from household savings or based on government policy. Countries with a high rate of household savings can accumulate funds to produce capital goods faster, and a government that runs a surplus can invest the surplus in capital goods.
    • However, an increase in GDP or GDS or consumption will not necessarily lead to an increase in capital formation. Because how much in invested back will depend on many other factors, for example Fiscal deficit, debt etc.
     

    By: Abhishek Sharma
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