Question

The GDP of an economy is Rs.100 crores. The aggregate saving is Rs.30 crores. If the autonomous aggregate investment rises from Rs.30 crores to Rs.45 crores, ceteris paribus, what would be the GDP in that economy in the new equilibrium?

• A. Rs. 100 crores.
• B. Rs. 130 crores.
• C. Rs. 145 crores.
• D. Rs. 150 crores.

Hint:

Think about the effect of the investment multiplier.

Answer 1

The Correct Option is D

With an initial GDP of Rs.100 crores and autonomous investment increasing from Rs.30 crores to Rs.45 crores, a rise in GDP is anticipated.

Using the investment multiplier, if the initial saving is Rs.30 crores, the GDP will adjust to a new equilibrium of Rs.150 crores.

Therefore, option (d) is the correct answer.