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Q.In an economy with every increase in income 15% of the increased income is saved.Suppose a fresh investment of Rs.600crore takes place in the economy.Calculate the following: (a)change in income (b)change in consumption?
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Q.In an economy with every increase in income 15% of the increased inc...
**Change in Income**

To calculate the change in income, we need to determine the amount that will be saved out of the fresh investment of Rs.600 crore.

Given that 15% of the increased income is saved, we can calculate the change in income as follows:

Change in Income = Investment / (1 - Savings Rate)

Where:
Investment = Rs.600 crore
Savings Rate = 15% or 0.15

Substituting the values into the formula:

Change in Income = 600 crore / (1 - 0.15)
Change in Income = 600 crore / 0.85
Change in Income ≈ Rs.705.88 crore

Therefore, the change in income resulting from the fresh investment of Rs.600 crore is approximately Rs.705.88 crore.

**Change in Consumption**

To calculate the change in consumption, we need to subtract the amount saved from the change in income.

Change in Consumption = Change in Income - Amount Saved

Given that 15% of the increased income is saved, we can calculate the change in consumption as follows:

Amount Saved = Savings Rate * Change in Income

Substituting the values into the formula:

Amount Saved = 0.15 * 705.88 crore
Amount Saved ≈ Rs.105.88 crore

Now, we can calculate the change in consumption:

Change in Consumption = Change in Income - Amount Saved
Change in Consumption = 705.88 crore - 105.88 crore
Change in Consumption ≈ Rs.600 crore

Therefore, the change in consumption resulting from the fresh investment of Rs.600 crore is approximately Rs.600 crore.

**Explanation**

In this economy, individuals save 15% of any increase in their income. When a fresh investment of Rs.600 crore takes place, it leads to an increase in income within the economy. The change in income can be calculated by dividing the investment by (1 - savings rate). This formula accounts for the fact that the investment increases the income by a certain proportion, and the remaining portion is saved.

Once we have determined the change in income, we can calculate the change in consumption by subtracting the amount saved (which is equal to the savings rate multiplied by the change in income) from the change in income. This gives us the portion of the increased income that is consumed.

In this scenario, the change in income resulting from the investment of Rs.600 crore is approximately Rs.705.88 crore. Out of this change in income, Rs.105.88 crore is saved based on the 15% savings rate. Therefore, the change in consumption is approximately Rs.600 crore, which represents the portion of the increased income that is consumed.

Overall, this calculation helps us understand the impact of the fresh investment on the economy in terms of changes in income and consumption.
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Q.In an economy with every increase in income 15% of the increased inc...
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Q.In an economy with every increase in income 15% of the increased income is saved.Suppose a fresh investment of Rs.600crore takes place in the economy.Calculate the following: (a)change in income (b)change in consumption?
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