GENERAL KNOWLEDGE

Detailed explanation-1: -Capital formation means increasing the stock of real capital in a country. In other words, capital formation involves making of more capital goods such as machines, tools, factories, transport equipment, materials, electricity, etc., which are all used for future production of goods.

Detailed explanation-2: -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-3: -Capital goods are physical assets that a company uses in the production process to manufacture products and services that consumers will later use. Capital goods include buildings, machinery, equipment, vehicles, and tools. Capital goods are not finished goods, instead, they are used to make finished goods.

Detailed explanation-4: -The three stages of capital formation are: (i) Creation of Savings, (ii) Effective Mobilization of Savings, and (iii) Investment of Savings.

Detailed explanation-5: -Capital formation is the net accumulation of capital goods, such as equipment, tools, transportation assets, and electricity, during an accounting period for a particular country. Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income.