macro

[aastha]

1) Between two periods in a closed economy , everybody's propensity to save doubles, while investment remains unchanged .As a result
a: saving doubles
b:income doubles
c:savings remain unchanged
d:income remains unchanged

2)For an economy , the long run rate of growth of GDP is 5% at full employment . The inv. rate is 20% and the rate of growth of labour force is 2%.then the capital output ratio is
a:2
b:5
c:7
d:10

[Manvendra]

Q1 :

A   : Savings remain unchanged.

 Y = C + I .
 Y - C = I or S ~ I .

Y1 - C1 = I1 and Y2 - C2 = I2 .  Because I1 = I2 ..therefore Y1 - C1 = Y2 - C2 or S1 = S2

[ritu]

For Q2...use harrod domar equation...we have to find theta which wud cm out to be 10..

[AJ]

in first question.. although savings remain unchanged.. but the income will reduce.. is that right..???

[Manvendra]

Y = C + I

Y = Co + cY + I

Y = Co + (1-s)Y + I

Y(1-1+s) = Co + I

sY = Co + I

Y in equilibrium =  Co + I / s

So , when s doubles ..income gets halved.


@Ritu : Please provide the equation which you have utilized in Q2. Thanks. :)