Question

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

Answer 1

The correct option is D All the above

The term underdevelopment refers to that state of an economy where levels of living of masses are extremely low due to very low levels of per capita income resulting from low levels of productivity and high growth rates of population. Capital formation is a major challenge in underdeveloped countries. This is because size of market is small and demonstration effect which means people get influenced by others.