Consider a simple Keynesian closed economy model with the following information:
The Marginal Propensity to Consume (MPC) is 0.9 and the initial level of saving is INR 120. When income rises by INR 100, then the new level of saving will be INR ____________ (in integer).
Consider a simple Keynesian closed economy model with the following information:
The Marginal Propensity to Consume (MPC) is 0.9 and the initial level of saving is INR 120. When income rises by INR 100, then the new level of saving will be INR ____________ (in integer).
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Solution and Explanation
\[ {MPC} + {MPS} = 1 \Rightarrow {MPS} = 1 - 0.9 = 0.1 \] Step 2: Calculate change in savings.
If income increases by INR 100, then: \[ \Delta S = {MPS} \cdot \Delta Y = 0.1 \cdot 100 = 10 \] Step 3: Add to initial savings. \[ {New savings} = 120 + 10 = \boxed{130} \]
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Consider the following Harrod-Domar growth equation: \[ \frac{s}{\theta} = g + \delta \] where \( s \) is the saving rate, \( \theta \) is the capital-output ratio, \( g \) is the overall growth rate, and \( \delta \) is the capital depreciation rate. If \( \delta = 0 \) and \( s = 20% \), then to achieve \( g = 10% \), the capital-output ratio will be ________ (in integer).
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