Gross capital formation will increase if:1. Gross domestic savings inc...
Answer: (d) None.
Gross capital formation, in simple terms is equivalent to investment made. It was earlier called gross domestic investment. The part of GDP that is used is called gross domestic consumption, while the part that is saved is gross domestic savings (GDS). Some part of this GDS will be re-invested back, and that is called gross capital formation. Now, an increase in GDP or GDS will not necessarily lead to an increase in capital formation. Because how much is invested back will depend on many other factors.
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Gross capital formation will increase if:1. Gross domestic savings inc...
Explanation:
Gross capital formation refers to the total value of investments in fixed assets (such as machinery, equipment, and construction) made by individuals, businesses, and the government within a country during a specific period of time. It is an important indicator of economic development and growth.
1. Gross domestic savings increase:
When the gross domestic savings of a country increase, it means that individuals, businesses, and the government are saving a larger portion of their income. This indicates that there is more money available for investment. Gross capital formation is likely to increase as these savings can be used to finance new investments in fixed assets.
2. Gross domestic consumption increase:
An increase in gross domestic consumption refers to an increase in the total amount of goods and services consumed within a country. While consumption is an important component of economic activity, it does not directly contribute to gross capital formation. Consumption represents the use of existing goods and services, whereas gross capital formation represents investment in new fixed assets. Therefore, an increase in gross domestic consumption does not necessarily lead to an increase in gross capital formation.
3. GDP increases:
Gross Domestic Product (GDP) is the total value of all goods and services produced within a country during a specific period of time. An increase in GDP indicates economic growth and expansion. While GDP growth can be associated with an increase in gross capital formation, it is not a direct determinant. Other factors such as savings, investment, and government policies also play a significant role in determining gross capital formation.
Based on the above explanations, the correct answer is option D: None. Gross capital formation will increase if gross domestic savings increase, but it is not directly influenced by an increase in gross domestic consumption or GDP.
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