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
Correct Answer
Explanation
The correct option is (d) because the Capital-Output Ratio measures the efficiency of investment; a high ratio indicates that a large amount of capital is required to produce a single unit of output, resulting in low productivity. While weak administrative machinery (a) is a tempting choice as it can lead to project delays, it is an indirect structural factor rather than the direct economic measure of how capital translates into growth. The core concept being tested is the Incremental Capital-Output Ratio (ICOR) and its role in determining the relationship between investment and economic output.
Economic Growth & ProductivityCapital-Output RatioHigh saving economycapital formationincrease in outputweak administrative machineryilliteracyhigh population densityhigh capital-output ratio