Question

if there is an excess of production over consumption in a year, where does it go? also mention two goods which help in capital formation in an economy​

Answer 1

Answer:

The excess of production over consumption in a year is called saving and this saving is invested in further production. Investment may be defined as “the addition made to the total stock of capital (including inventories) in a year.”

Capital Formation:

Capital formation means increasing the stock of real capital in a country.

In other words, capital formation involves making of more capital goods such as machines, tools, factories, transport equipment, materials, electricity, etc., which are all used for future production of goods.

For making additions to the stock of Capital, saving and investment are essential.

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