Components of gross capital formation include:
1. Gross fixed capital formation: This refers to the investment made in long-term assets such as buildings, machinery, equipment, and infrastructure. It represents the creation of new physical capital or the addition of value to existing assets.
2. Changes in inventories: These include the increase or decrease in stocks of raw materials, work-in-progress, and finished goods held by businesses. Changes in inventories are considered a form of investment as they represent the accumulation or reduction of goods for future production or sale.
3. Acquisitions less disposals of valuables: This category includes the purchase or sale of valuable items like precious metals, artworks, antiques, and jewelry. Such transactions are included in gross capital formation as they involve the transfer of wealth from one asset to another.
4. Additions to non-produced assets: This includes expenditures on intangible assets like patents, copyrights, trademarks, and software. These assets do not have a physical existence but are considered a form of capital as they contribute to the productive capacity of an economy.
5. Net acquisitions of new and existing buildings and other structures: This component captures the net change in the stock of residential and non-residential buildings, as well as other structures like roads, bridges, and dams.
6. Net purchases of machinery and equipment: This refers to the net change in the stock of machinery and equipment used in production, including vehicles, tools, and industrial machinery.
7. Net purchases of intellectual property products: This includes the net change in the stock of research and development (R&D) expenditure, software, and databases.
These components together represent the gross capital formation in an economy and reflect the investment made by households, businesses, and the government to expand and improve the productive capacity of the economy.
List components of gross capital formation
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