In a year Adams earns $1000 and saves $100. In year 2, Adam gets a $500 raise so that he earns a total of $1,500. Out of that $1,500, he saves $200. What is Adam's MPC out of his $500 raise? a. 0.50 b. 0.75 c. 0.80 d. 1.00

To calculate Adam's marginal propensity to consume (MPC), we need to determine how much of the raise he spent on consumption rather than saving it. The formula for MPC is:

MPC = Change in Consumption / Change in Income

From the information given: - In year 1, Adam earns $1,000 and saves $100. This implies he spent $900 on consumption (since Income = Consumption + Savings). - In year 2, Adam earns $1,500 (after a $500 raise) and saves $200. This implies he spent $1,300 on consumption (since $1,500 - $200 = $1,300).

Change in Consumption = Consumption in year 2 - Consumption in year 1 Change in Consumption = $1,300 - $900 Change in Consumption = $400

Change in Income = Income in year 2 - Income in year 1

Change in Income = $1,500 - $1,000

Change in Income = $500

Now, plugging these numbers into the MPC formula:

MPC = Change in Consumption / Change in Income

MPC = $400 / $500

MPC = 0.80

So the correct answer is c. 0.80.