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Class : 11
Unit : Economics


Write the meaning of capital formation process.

Ans : Capital formation is the process of increasing the stock of real capital in the economy. Capital formation involves making more and more capital goods. It is defined in both narrow and wider sense. In the narrow sense, capital formation means the expenditure made on fixed capital such as plants, machinery, tools etc. In the broader sense, capital formation is the investment in human capital along with material capital. The economic development of a country significantly depends upon the availability of capital stock with it. Higher rate of capital formation enables the economy to produce a larger volume of goods and services, which in turned increases the national income.