Question

If the GDP of an economy be Rs.100 and the autonomous aggregate investment and ex-post aggregate saving be Rs.30 in equilibrium, what would be the aggregate saving in equilibrium in that economy if the aggregate investment remains at Rs.30 and the average saving propensity increases from 30% to 40%?

• A. Rs. 40.
• B. More than Rs. 30.
• C. Rs. 30.
• D. More than Rs. 40.

Hint:

How much saving is possible in equilibrium?

Answer 1

The Correct Option is C

Given a GDP of Rs.100 and an increase in average saving propensity from 30% to 40%, the new saving is calculated:

Calculated new saving is 100 × 40% = 40 units.

Nevertheless, equilibrium aggregate saving cannot exceed the autonomous investment of Rs. 30.

Therefore, option (c) is correct.