In an economy, in a given year the production of capital goods increases by Rs.100, of which Rs.80 worth of goods can be sold in the mkt. In the same year there takes place a simultaneous decline in the import of Rs.30 worth of capital goods. Everything else remains unchanged. Following this, how much does the GDP increase by?

To determine how much the GDP increases by, we need to consider the components of GDP affected by the changes mentioned in the question. GDP (Gross Domestic Product) is the total value of all final goods and services produced within a country's borders in a given period of time.

In this scenario, there are two changes occurring simultaneously:

1. Increase in the production of capital goods: The production of capital goods increases by Rs.100. However, only Rs.80 worth of goods can be sold in the market. This means that the value added to GDP due to the increased production is Rs.80. It is important to note that only the value of goods sold contributes to GDP.

2. Decline in the import of capital goods: The import of capital goods declines by Rs.30. When imports decrease, it means that fewer goods and services are being purchased from other countries. Since imports are subtracted from GDP, this decline in imports will have a positive impact on GDP. The decline in imports increases the value of GDP by Rs.30.

To calculate the overall increase in GDP, we add the value added from the increased production (Rs.80) and the increase in GDP due to the decline in imports (Rs.30):

GDP increase = Value added from increased production + Increase in GDP due to decline in imports
= Rs.80 + Rs.30
= Rs.110

Therefore, the GDP increases by Rs.110 in this scenario.