BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -Capital is the most important factor of production particularly in a developing economy. Capital Formation is defined as that part of country’s current output and imports which is not consumed or exported during the accounting period, but is set aside as an addition to its stock of capital goods.

Detailed explanation-2: -Internal sources include household savings, public savings and corporate savings. External sources include foreign investment, trade surplus, foreign borrowing, etc. Domestic savings can be either voluntary saving by people or forced saving by government through taxes and inflation.

Detailed explanation-3: -Why is capital formation important? Capital formation essentially leads to more money swirling around the economy. The accumulation of capital goods translates to investment and the production of more goods and services, which should boost the income of the population and stimulate demand.

Detailed explanation-4: -Economists include government as a factor of production. When productive resources are used for capital formation, fewer consumer goods are produced. The United States has adequate resources to satisfy all the wants of all its people. Countries with a command economy are often dictatorships.