Highlight the signilicance of the notion
of capitai-output ratio.
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In Economics,capital-output ratio is calculated by taking the ratio between the overall value of capital investment and the change in the output or GDP level in an economy or country.
Explanation:
Significance of capital-output ratio:-
- Capital-output ratio basically shows how much capital or business investment is finally contributes to the output or GDP growth in any country.Hence,it is an important indicator of the actual value of the capital or business investment in the country,considering its contribution or implication in the overall economic growth.
- It also indicates the productive efficiency or productivity of the factors or inputs of production.Therefore,a low capital-output ratio implies that relatively less amount of capital investment is required to produce a certain level of output or GDP thereby implying higher productive efficiency of the existing factors or inputs of production and resources and vise versa.
- Capital-output ratio also provides important information and indications about the factor/input efficiency in the economy which can be used as an important tool or instrument for economic policy or decision making regarding factor/input productivity and capital or business investment.
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