Capital Formation

Capital formation refers to the process of increasing the stock of real capital in a country. It is an essential component of economic development and growth. The process of capital formation involves saving, investment, and the creation of new capital goods.

Other Names for Capital Formation

There are several other names for capital formation, including:

1. Investment: Investment refers to the allocation of resources to create new capital goods or to improve existing ones. This includes investment in physical capital, such as machinery and equipment, as well as investment in human capital, such as education and training.

2. Wealth Formation: Wealth formation refers to the process of accumulating assets over time. This can be achieved through saving and investing, as well as through other means, such as inheritance or entrepreneurship.

3. Capital Output Ratio: The capital output ratio (COR) is a measure of the efficiency of capital use in an economy. It is calculated by dividing the total stock of capital by the total output produced. A low COR indicates that capital is being used efficiently, while a high COR indicates that capital is being used less efficiently.

4. Savings: Savings refers to the portion of income that is not consumed but is instead set aside for future use. This can include savings in the form of bank deposits, investments in stocks and bonds, and other types of financial assets.

Conclusion

Capital formation is a critical component of economic development and growth. It involves saving, investment, and the creation of new capital goods. Other names for capital formation include investment, wealth formation, capital output ratio, and savings.