Question
Capital formation in a country will necessarily lead to which of the following:
Select the correct answer using the code given below:
- Increase in ICOR
- Decrease in ICOR
- Economic growth
Select the correct answer using the code given below:
Answer: Option A
Answer: (a)
Capital formation means the production of capital goods. Production of capital goods leads to the future production of goods and services and hence economic growth. So, statement (iii) is true
Production of capital goods increases the capital stock in the economy but does not tell whether there is an increase in efficiency of that capital.
Efficiency is measured as how much output is produced from how much of inputs. So, we can’t say that ICOR will increase or decrease with capital formation.
Basically, if you increase the number of hours you study, still you cannot say that the “number of pages per hour” that you study will increase or decrease.
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Answer: (a)
Capital formation means the production of capital goods. Production of capital goods leads to the future production of goods and services and hence economic growth. So, statement (iii) is true
Production of capital goods increases the capital stock in the economy but does not tell whether there is an increase in efficiency of that capital.
Efficiency is measured as how much output is produced from how much of inputs. So, we can’t say that ICOR will increase or decrease with capital formation.
Basically, if you increase the number of hours you study, still you cannot say that the “number of pages per hour” that you study will increase or decrease.
Was this answer helpful ?
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