Concept:In national income accounting, capital formation is the portion of total production not used for current consumption.
Explanation:Total production,
P, is divided between consumption,
C, and investment or capital formation,
CF.
To find the amount set aside for capital formation, subtract what is consumed from what is produced.
Thus, the relationship is written as:
CF=P−CThis means that capital formation increases when consumption decreases, assuming production remains constant.
Savings are therefore the part of income not spent on consumer goods, which is then available for investment.
Answer:CF=P−CSo the correct option is
A. P - C.