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

Given that the initial GDP is Rs.100 crores and the autonomous investment increases from Rs.30 crores to Rs.45 crores, we expect the GDP to rise in response to the increased investment.

This can be calculated using the investment multiplier. If the initial saving is Rs.30 crores, the GDP will adjust in the new equilibrium to Rs.150 crores.

Hence, the correct answer is (d).