Question

Explain three factors on which the capital formation of a country depends.

Answer 1

Three factors on which the capital formation of a country depends are:a) Volume of saving: The accumulation of capital directly depends upon saving. Saving means the difference between income and consumption. The difference can be utilized for capital formation.

b) Ability to save: It directly depends upon the income of the individuals and the taxation policy of the government. Higher income and low taxation leads to higher rate of capital formation.

c) Market conditions: The prosperity encourages and enhances the saving but depression reduces the saving of people. Capital formation is highly affected by market conditions of boom and depression.