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Income-expenditure identity in a closed economy

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Reference no: EM132284357

C = 0.7 Y

I = 500

G = 300

Consider the income-expenditure identity in a closed economy, Y = C + I + G. Suppose consumption is always a fraction (mpc) of income such that  C = mpc * Y.

  1. What is the value of Y?
  2. If F increases to 350, with I remaining constant, what is the new value of Y?

What is the ratio 1/(1-mpc?

a) the income multiplier

b) the spending multiplier

c) the marginal propensity to save

d) the marginal propensity to consume

Reference no: EM132284357

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