Jnu 2008

[Anjali]

Suppose aggregate income in an economy is equal to total wages plus total profits. 40 % of all profits are saved. If the share of wages in aggregate income is 60% and the rate of saving in the economy is 0.25 , the fraction of wages saved in the economy is ?
0.09
0.15
0.16
0.24

[bhavya jain]

we'll proceed this way to the above question
we have, Y=W+P
rate of savings=wages saved + profit saved
where wages=0.6y & profits=0.4y
thus, 0.25=0.6*x+0.4*0.4 (where x denote the fraction of wages saved in the economy)
implies x=0.15 (15%)

[Anjali]

But don't we take rate of rate of savings as S/Y ?
What does 0.4 * 0.4 suggest ? Does it mean all 40% of 40 % share of Y is saved ?

[bhavya jain]

this means 40% of profits are saved, where rate of profits saved are 40% & profits share=40% of Y.

[Anjali]

Yes that makes sense. Thanks a ton Bhavya ! :-)
Just see if you could help me with my other JNU queries , that I posted yesterday. Thanks again.