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How is gross domestic capital formation defined?

  • A.Flow of expenditure devoted to increasing or maintaining the capital stock
  • B.Expenditure incurred on physical assets only
  • C.Production exceeding demand
  • D.Net addition to stock after depreciation

Answer: D

It is the flow of expenditure devoted to increasing or maintaining the capital stock.

Gross domestic capital formation counts all investment in fixed assets and inventories before any deduction. Subtracting depreciation gives net capital formation - which is what the fourth option describes.

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