Here Is a Consumption Function: C = C₀ + MPC(Y_d)

question 6

Multiple Choice

Here is a consumption function: C = C₀ + MPC(Y_d) .If MPC is 0.80,then we know that

• A) as Y_d rises by $1,Co rises by $0.80.
• B) as Y_d rises by $1,C rises by $0.80.
• C) Y_d rises by $0.80.
• D) as C₀ rises by $0.80,Y_d rises by $1.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the percentage of fixed versus variable costs that a company has.

Marginal Tax Rate

The marginal tax rate is the rate at which an additional dollar of income is taxed, representing the fraction of the last dollar earned that is paid in taxes.

Required Rate of Return

The lowest expected gain an investor foresees from putting money into a specific asset, taking into account the asset’s level of risk.

Financial Break-Even

The point at which total revenues are equal to total financial costs, resulting in zero net income or loss.