The form of capital that is required for the day-to-day running of production activities is called?

Step 1: Analyze the question The question asks for the type of capital used in the day-to-day running of production. The key phrase is "day-to-day", which points to capital that is used up and replaced regularly.

Step 2: Explain the concept Capital is a man-made resource used to produce other goods and services. It is classified in several ways:

• Fixed capital: durable assets used repeatedly over a long period, such as machines, factory buildings and vehicles. They are not used up in a single production cycle.
• Social capital: facilities provided by government for the benefit of society, such as roads, hospitals and schools. It can also mean networks of trust and relationships.
• Circulating (working) capital: capital that is used up quickly or changes form during production. It covers raw materials, fuel, wages, and cash for daily expenses. It is called "circulating" because it keeps flowing through the production process.
• Liquid capital: assets that can be converted into cash easily, such as cash and bank balances. It describes how easily the capital can be turned into money, not what it is used for in production.

Step 3: Solve step by step

1. The question is about the capital needed for daily production activities, such as buying raw materials, paying workers and buying fuel.
2. Fixed capital is long-lasting, so it is not a day-to-day item. Option A is out.
3. Social capital is provided for the community, not for running a firm's production. Option B is out.
4. Liquid capital is about how easily assets convert to cash, not about daily production inputs. Option D is out.
5. Circulating capital is used up and replaced continuously in the production process. This fits the question.

Step 4: Answer The correct option is **C.

Exam tip: Remember "Fixed stays, Circulating goes." Fixed capital stays in the business for years, while circulating capital is used up or turned over quickly. Whenever you see "day-to-day" or "working capital", think circulating capital.