What measures the percentage increase in capital formation required for obtaining a percentage increase in GDP?
A
Liquidity ratio
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B
Incremental capital output ratio
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C
Financial leverage ratio
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D
None of the above
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Solution
The correct option is B Incremental capital output ratio Incremental capital output ratio measures the marginal amount of investment capital needed to generate a next unit of production.
Incremental capital output ratio= Annual Investment/Annual increase in GDP.