Tessa's break-even 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 $15,500.
C) consumption spending will be $13,000.
D) saving will be $2,500.

Question

Quizplus · Accepted Answer

MPC = 0.75, so MPS = 0.25. Therefore, consumption spending = 0.75 * $16,000 = $12,000. Since Tessa's break-even income is $10,000, she will save $2,000 ($12,000 - $10,000).

Tessa's Break-Even Income Is $10,000, and Her MPC Is 0