Question : The monthly income of a person was INR 40,000. He used to save 25% of his income. His nominal income increases by 15% and his nominal expenditure increases by 20%. What is the percentage change in his nominal savings?
Option 1: 7.5%
Option 2: 0%
Option 3: 5%
Option 4: 10%
Correct Answer: 0%
Solution :
The monthly income of a person was = INR 40,000
He used to save 25% of his income
His nominal income increases by 15% and his nominal expenditure increases by 20%
Saving = 25% of 40000 = INR 10000
The expenditure of a person is = Total Income - Savings
Expenditure = INR 40000 – INR 10000 = INR 30000
As the income is increased by 15%
Increases in income = $40000 \times \frac{15}{100}$ = INR 6000
New income will be = Previous income + Increased income
New Income = INR 40000 + INR 6000 = INR 46000
The expenditure is also increased by 20%
Increases in expenditure = $30000 \times \frac{20}{100}$ = INR 6000
New expenditure will be = previous expenditure + Increased expenditure
New expenditure = INR 30000 + INR 6000 = INR 36000
New savings of a person is = Total Income – expenditure
New saving = 46000 – 36000 = INR 10000
The percentage change in savings = $\frac{\text{Change in saving}}{\text{Previous Income}}\times 100$ = $\frac{10000 – 10000}{10000}\times 100$ = 0%
$\therefore$ The percentage change in his normal savings is 0%.
Hence, the correct answer is 0%.
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