Re: IMP QUESTION

Posted by kangkan on Feb 15, 2014; 12:55pm
URL: http://discussion-forum.276.s1.nabble.com/IMP-QUESTION-tp7584788p7584789.html

Hi Vandita..my answer is 48...

Here is the working:
Assume current economy output is 100 cr. There fore current capital stock =Rs 400 Cr

since ecomomy is growing at 6%,the output next year will be 106 cr..to maintain the same capital output ratio,the new capital stock must be Rs 424 crore..

therefore investment in current year must be Rs 24 cr.

Let the profit before tax be x.

income accruing to capitalist =0.75x(tax on profit is 25%)
Savings by capitalists= 0.5*0.75x=0.375x(since they save 50% of their income)
Tax collected=0.25x
govt investment=0.5*0.25x=0.125x

Now in a closed econmoy
Savings =investment
0.375x=40-0.125x
=>0.5x=40
=>x=48

Since our assumption was output =100,the share of pretax profit to output is 48%.

I guess you can do it without the assumptions.
Thanks