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# Capital Accumulation - Essay Example

## Extract of sampleCapital Accumulation

There are several factors that could determine a country's economic progression. It could be as diverse aspects as the availability of roads and infra-structural facilities as the quality of education and the significant technological prowess the country is able to wield in the comity of nations.
Resorting to Foreign Direct investments and equity participation of foreign governments or public/ private agencies in investments of government and/or private sectors and also capital repatriation from NRI's
In the context of capital accumulation, the Harrod-Domar Model assumes significance since it is a determinant of the growth rate G. If Y could be represented as GDP and S=Savings, then the growth of savings is determined by GDP-S=SY.
The Investments represented by I is an important determinant for the produce as well as increase in capital. Thus, K = Y. Thus, it could be said that for the equilibrium point to be reached, a consensus needs to be made between demand and supply of a country's produce. Hence I = S.
This model is important since the equilibrium growth rate of the output = Ratio of the marginal propensity to save and the capital=output ratio. How the economy is growing is based on the growth of the capacity of the economy to produce as compared with the demand of the produce of the state.
By putting to use this example, it is proposed to take a hypothetical instance of capacity production level at 1000/year and a capital-output ratio of 3. Therefore capital stock is 3000.
If, in this hypothetical instance, the marginal propensity to consume out of the Gross Domestic Product (GDP) is 0.7, then the marginal propensity to save is 0.3, which is inclusive of all types of savings. The equilibrium growth rate = propensity to save/capital output ratio, and in this case, it would be 0.3/3 or 10% annual growth rate.
Now applying the current GDP of 1000 level of savings = 1000x.3= 300.
Similarly the growth rate is 0.1x1000 = 100.
And finally, the capital output ratio for the additional capital = 3x100= 300.
Thus, the position in this hypothetical case is safe in that the level of increased investments matches the available savings of 300. In other words the increased level of ...Show more

## Summary

In pristine terms, capital accumulation refers to the creation of wealth by nations. This formation of wealth is generated through productive use of assets, for which investments are made, and which may used, either for consumption purposes, or for generating further assets value.
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