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

Since the GDP is Rs.100 and the average saving propensity increases from 30% to 40%, the new saving is calculated as follows:

New Saving = 100 × 40% = 40 units.

However, the aggregate saving in equilibrium cannot exceed the autonomous investment, which remains at Rs. 30.

Hence, the correct answer is (c).