Capital formation is the process of increasing the stock of capital goods in an economy. Statement 1: Capital formation depends on savings and the effectiveness of financial institutions. Savings provide the resources that can be channelled into investment. Effective financial institutions (like banks, stock markets) are crucial for mobilizing these savings and directing them towards productive investments. This statement is correct. Statement 2: Investment is the essential factor of capital formation. Investment, specifically in capital goods (like machinery, buildings, infrastructure), is precisely what constitutes capital formation. Without investment, the stock of capital cannot increase. This statement is correct.
With reference to the 'Capital formation' which of the statements is/are correct? Process of capital formation depends on savings and effectiveness of financial institutions. Investment is the essential factor of capital formation. Select the correct answer using the codes given below.
Asked in UPPCS Prelims 2021 · Topic: Nature of Indian Economy (Sectoral Composition and Structural Transformation)
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