The correct answer is D. Savings.
Capital formation is the process of accumulating physical and human capital. Physical capital refers to manufactured goods that are used in the production of other goods and services, such as machines, tools, and buildings. Human capital refers to the knowledge and skills that workers acquire through education, training, and experience.
Savings are the portion of income that is not spent on consumption. Savings can be used to finance capital formation by businesses and governments. Businesses use savings to invest in new equipment and technology, while governments use savings to build infrastructure and provide public services.
National income is the total value of goods and services produced in a country in a given year. National income is a measure of economic output, but it does not directly measure savings. Expenses are the costs of goods and services consumed in a given period. Expenses do not directly contribute to capital formation. Foreign aid is the transfer of financial resources from one country to another. Foreign aid can be used to finance capital formation, but it is not a necessary condition for capital formation.
In conclusion, the process of capital formation depends on savings. Savings are the portion of income that is not spent on consumption. Savings can be used to finance capital formation by businesses and governments.