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Question

Despite being a high saving economy, capital formation may not result in significant increase in output due to

(a) weak administrative machinery
(b) illiteracy
(c) high population density
(d) high capital-output ratio

Answer:

D

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Explanation:

A high capital-output ratio means that a large amount of capital is required to produce a given level of output. In such a scenario, even if there is a high rate of saving and capital formation in the economy, it may not lead to a significant increase in output. This is because the productivity of capital is low, and it takes a large amount of investment to generate a relatively smaller increase in output.

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