Question

Which of the following leads to capital formation?

• A. Consumption
• B. Exchange
• C. Saving
• D. Investment

Hint:

Savings are potential, but only investment converts them into actual capital formation.

Answer 1

The Correct Option is D

Step 1: Understanding capital formation.
Capital formation refers to the process of building up the capital stock of a country through investment in productive plants and equipment.
Step 2: Analyzing the options.
(A) Consumption: Does not create new assets, so it does not lead to capital formation.
(B) Exchange: This is just trading of goods/services, not capital creation.
(C) Saving: Saving is important, but unless savings are converted into investment, they don’t lead to capital formation.
(D) Investment: Correct — investment directly contributes to capital formation by creating productive assets.
Step 3: Conclusion.
Thus, the factor that leads to capital formation is Investment.