Q. Despite being a high saving economy, capital formation may not result in significant increase in output due to

Answer: (d) high capital-output ratio

The capital-output ratio is the amount of capital needed to produce one unit of output.
It is the relationship between the level of investment made in the economy and the consequent increase in Gross Domestic Product (GDP).
It also expresses the relationship between the value of capital invested and the value of output.
High Capital-Output ratio means that more capital is needed to produce one unit of output due to which the increased capital formation may not result in significant increase in output.

It is a variant of the Capital Output Ratio.
The ICOR indicates an additional unit of capital or investment needed to produce an additional unit of output.
The utility of ICOR i0s that with a rise in investment, the capital-output ratio itself may change, and hence the usual capital-output ratio will not be useful.

A lower capital-output ratio shows the productivity of capital and technological progress.
A lower capital-output ratio indicates that a lower level of investment is required to produce a given growth rate in the economy. This is considered to be a desirable situation.
A lower capital-output ratio also shows that capital is very productive or efficient.

How can the efficiency of capital be achieved?

It is possible mainly through technological progress. With superior technology, the capital will be efficient to produce more output and the capital-output ratio will be lower.