Holly's break-even level of income is $10,000 and her MPC is 0.75.If her actual disposable income is $16,000, her level of:
A)consumption spending will be $14,500.
B)consumption spending will be $4,500.
C)consumption spending will be $13,000.
D)saving will be $2,500.

Question

Quizplus · Accepted Answer

The break-even income is $10,000, meaning all income up to this point is consumed. With an MPC of 0.75, 75% of any additional income is consumed. The additional income is $6,000 ($16,000 - $10,000), so additional consumption is $4,500 (0.75 * $6,000). Total consumption is $10,000 + $4,500 = $14,500.

Holly's Break-Even Level of Income Is $10,000 and Her MPC