Capital formation is a term used to describe the net capital accumulation during an accounting period for a particular country.
What is the meaning of capital formation in economics?
Capital formation is a concept used in macroeconomics, national accounts and financial economics. It is used also in economic theory, as a modern general term for capital accumulation, referring to the total “stock of capital” that has been formed, or to the growth of this total capital stock.
What is capital formation and why is it important?
In other words, capital formation involves making of more capital goods such as machines, tools, factories, transport equipment, materials, electricity, etc., which are all used for future production of goods. For making additions to the stock of Capital, saving and investment are essential.
Is capital formation the same as investment?
Gross fixed capital formation (GFCF), also called “investment”, is defined as the acquisition of produced assets (including purchases of second-hand assets), including the production of such assets by producers for their own use, minus disposals.
Is capital formation a flow variable?
capital formation is a flow,because it is measured over a period of time while capital is stock because it is a quantity measured at a specific point of time .