question_answer

In an economy, total savings are Rs. 2,000 crore and the ratio of Average Propensity to Save and Average Propensity to Consume is 2 : 7. Calculate the level of income in an economy.                                                                             

Answer:

    Let Average Propensity to Save (APS)   = \[2x\]                                                              Average Propensity to Consume (APC) =  \[7X\]                                                            Now,                                          APS+APC=1                                                     \[2x+7x=1\]                                                          \[9x=1\]                                                              \[x\frac{1}{9}\] \[\therefore \] Average Propensity to Save (APS) = \[2\times \frac{2}{9}\]                                                                                                APS = \[\frac{Saving\,\,(S)}{Income\,\,(Y)}=\frac{2}{9}\]             \[\therefore \]                                          \[\frac{S}{Y}=\frac{2}{9}\] Here,    Total Saving (S) = Rs. 2,000 crore [Given]                                         So, \[\frac{2,000}{Y}=\frac{2}{9}\]  Y =\[2,000\times \frac{9}{2}\] Rs. 9,000 crore Or National Income = Rs.9,000 crore