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Capital formation in underdeveloped countries is a major bottleneck. The reason can be
- a)Small size of market with no incentive for investment
- b)Low level of income
- c)Demonstration effect
- d)All the above
Correct answer is option 'D'. Can you explain this answer?
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Capital formation in underdeveloped countries is a major bottleneck. T...
Capital formation refers to investment in tools, machinery, buildings etc. inequalities in the economy is also a reason behind this.
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Capital formation in underdeveloped countries is a major bottleneck. T...
Capital Formation in Underdeveloped Countries
Capital formation refers to the process of increasing the stock of real capital in an economy. It is essential for the economic growth and development of a country. However, underdeveloped countries face several challenges in capital formation. Here are some of the reasons why capital formation is a major bottleneck in underdeveloped countries:
Small Size of Market
Underdeveloped countries often have a small market size, which makes it unattractive for investors to invest in these countries. This lack of investment leads to a lack of capital formation, which further hampers economic growth and development.
Low Level of Income
Underdeveloped countries have a low level of income, which means that the people have a low purchasing power. This low purchasing power makes it difficult for businesses to sell their products and services, which leads to a lack of investment and capital formation.
Demonstration Effect
The demonstration effect refers to the phenomenon where people tend to imitate the consumption patterns of those who are better off than them. In underdeveloped countries, the demonstration effect can lead to a lack of investment and capital formation. This is because people tend to spend their money on consumption rather than saving and investing.
Conclusion
In conclusion, capital formation is a major bottleneck in underdeveloped countries. The small size of the market, low level of income, and demonstration effect are some of the reasons why capital formation is a challenge in these countries. To overcome these challenges, underdeveloped countries need to create a conducive environment for investment, increase the level of income, and encourage people to save and invest.
Capital formation refers to the process of increasing the stock of real capital in an economy. It is essential for the economic growth and development of a country. However, underdeveloped countries face several challenges in capital formation. Here are some of the reasons why capital formation is a major bottleneck in underdeveloped countries:
Small Size of Market
Underdeveloped countries often have a small market size, which makes it unattractive for investors to invest in these countries. This lack of investment leads to a lack of capital formation, which further hampers economic growth and development.
Low Level of Income
Underdeveloped countries have a low level of income, which means that the people have a low purchasing power. This low purchasing power makes it difficult for businesses to sell their products and services, which leads to a lack of investment and capital formation.
Demonstration Effect
The demonstration effect refers to the phenomenon where people tend to imitate the consumption patterns of those who are better off than them. In underdeveloped countries, the demonstration effect can lead to a lack of investment and capital formation. This is because people tend to spend their money on consumption rather than saving and investing.
Conclusion
In conclusion, capital formation is a major bottleneck in underdeveloped countries. The small size of the market, low level of income, and demonstration effect are some of the reasons why capital formation is a challenge in these countries. To overcome these challenges, underdeveloped countries need to create a conducive environment for investment, increase the level of income, and encourage people to save and invest.
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Capital formation in underdeveloped countries is a major bottleneck. The reason can bea)Small size of market with no incentive for investmentb)Low level of incomec)Demonstration effectd)All the aboveCorrect answer is option 'D'. Can you explain this answer?
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