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Distinguish between fixed capital formation and changes in stocks. |
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Answer» Fixed capital formation refers to the creation or addition of fixed capital assets such as buildings, machines, tools, equipment, roads, railways etc, during a year. Change in stock is the difference between closing stock and opening stock. Fixed capital formation is addition to fixed capital assets but change in stocks is an addition to inventories. The former is done in view of long-term demand whereas the latter is determined by short-term demand. |
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