QUESTION 14

Use data below to answer the following questions:

C = 0.7 Y

I = 350

G = 650

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

1.What is the value of Y? ________

2.If G increases to700, with I remaining constant, what is the new value of Y? _____________

3.What is the ratio 1/(1-mpc)?