Question

capital formation refers to the total investment made on capital goods.

• A. Net
• B. Gross
• C. Mean
• D. Average

Answer 1

The correct option is B Gross

Capital formation refers to the accumulation of net capital goods or assets such as machinery, tools, and raw materials.

Capital formation can be of two types:

1. Gross capital formation
2. Net capital formation.

Gross capital formation refers to the total investment made on capital goods. Gross capital formation includes both net investment and replacement investment or depreciation.

Depreciation refers to the monetary value of capital assets such as machines and tools, which decreases over a period of time due to wear, tear, and obsolescence.