Answer to Question #292650 in Microeconomics for Sam

Question

Why is capital formation important to the South African economy

Answer 1

Capital Formation in South African Economy.

Capital formation is characterized as a nation’s present production and imports that are not consumed domestically or otherwise, within a certain bookkeeping timeframe. Instead, the products are withheld as to boost domestic stock of capital goods. Capital formation is significant to an economy, as it expounds on the production possibilities, alongside adding value to nations’ growth potential. In the case of South Africa economy, according to a study by Ncanywa & Makhenyane (2016), the nation took to prioritizing privatization policies, in the quest to foster investment within the economy. Such policies aid with fastening efficiency expectations, booster allocation of economic resources, curb unemployment alongside checking inflation, and to intensify aggregate supply.

In its realization to embrace the mentioned economic progresses, the economy highlighted capital formation as the fundamental vehicle to maintain course. Capital formation therefore is significant to the economy, and a critical tool to maintain the economy aligned to its objectives. In addition, studies have shown that, a fixed capital formation, relates positively to the growth of an economy both in the short run and long run. In its growth course, capital formation is associated with improved standards of living for citizens within an economy, which is an ideal and appreciable situation for the South African economy.

Reference

Ncanywa, T., & Makhenyane, L. (2016). Can investment activities in the form of Capital Formation influence economic growth in South Africa? http://hdl.handle.net/10386/1653