Question: In a closed economy (i.e. one with no foreign trade) the following relationships hold:

C = 0.6Y_d      Y_d = (1 - t)Y     Y = C + I + G

I = 120     t = 0.25        G = 210

where C is consumer expenditure, Yd is disposable income, Y is national income, I is investment, t is the tax rate and G is government expenditure. What is the marginal propensity to consume out of Y? What is the value of the government expenditure multiplier? How much does government expenditure need to be increased to achieve a national income of 700?