(a)OR(b)

State the meaning and any two components of Gross Domestic Capital formation.

Gross Domestic Capital Formation refers to addition to the capital stock which includes replacement for the wear and tear which the capital stock undergoes.

Two Components of Gross Domestic Capital Formation:

A good can be classified as a final good or not, depending on the economic nature of its use. Once a good is sold to the consumer, it crosses the production boundary and any further transformation at the hands of the producer is not possible. Although it may undergo further transformation at the hands of the ultimate purchaser but it is non-economic in nature.

However, if the same product is used for further production or resale in the same year, it will be treated as an intermediate good as value addition at any further stage is possible.