Question

What is capital formation, and how much does it contribute to economic growth?

Answer 1

Capital formation promotes investment which in turn provides income to the investors as well as help in increase in production and thus promoting economic growth. This capital formation is important for economic growth

Answer 2

Capital formation increases investment which effects economic development in two ways. Firstly, it increases the per capita income and enhances the purchasing power which, in turn, creates more effective demand. Secondly, investment leads to an increase in production.