UPSC Previous Year Question | Prelims GS | 2018

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

  1. weak administrative machinery
  2. illiteracy
  3. high population density
  4. high capital-output ratio

Answer

Correct Answer

high capital-output ratio

Explanation

A high capital-output ratio means more capital is needed per unit of additional output, so even a high saving and investment rate yields limited output growth.

Topics: capital formation and growth models, capital-output ratio, economy, growth and development