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

The correct answer is D.

Weak administrative machinery and illiteracy can indeed impede economic growth and capital formation efficiency, but they do not directly relate to the capital-output ratio's role in mediating the relationship between capital formation and output increase.
High population density could lead to various economic challenges, including pressure on resources and infrastructure, but its direct impact on capital formation translating into output is more complex and involves factors such as labor market dynamics, which is not specifically about the capital-output ratio.
High capital-output ratio directly pertains to the efficiency of converting capital into output. A high capital-output ratio signifies that a significant amount of capital is needed to produce a small increase in output, which can result in lower returns on investment and potentially slower economic growth, as it indicates that investments are not being efficiently translated into additional output.

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