Economics • Economic BasicsMedium
How does an increase in the Gross Capital Formation as a percentage of Gross State Domestic Product impact the long-term growth trajectory of Chhattisgarh?
A. It expands the productive capacity of the state by augmenting physical and infrastructure assets✓ Correct Answer
B. It immediately reduces consumer price inflation by flooding retail markets with imported goods
C. It contracts government revenue through mandatory tax exemptions on capital investments
D. It lowers employment generation by replacing manual labour with automated machinery permanently
💡 Solution & Explanation
Gross Capital Formation represents additions to fixed assets such as transport networks, power plants, irrigation systems, and factory buildings, which directly enhance the aggregate supply potential and long-term economic growth rate. Higher capital accumulation creates durable foundations for sustained industrial and agricultural output. Public capital expenditure in Chhattisgarh focuses heavily on rural connectivity and irrigation.
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