In a report, use the sample information to 1. Estimate and interpret the model: Consumption =

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In a report, use the sample information to

1. Estimate and interpret the model: Consumption = β0 + β1 Disposable Income + ε.

2. Indicate which assumption might be violated, given that the analysis uses time series data. 

3. Use the runs test to determine whether the pattern of the residuals is nonrandom at the 5% significance level.


The consumption function, developed by John Maynard Keynes, captures one of the key relationships in economics. It expresses consumption as a function of disposable income, where disposable income is defined as income after taxes. For the years 2000–2016, quarterly observations are collected on U.S. per-capita consumption (in $) and U.S. per-capita disposable income (in $). The accompanying table shows a portion of the data.


Time Consumption Disposable Income Quarter 1, 2000 Quarter 2, 2000 28634 31192 28837 31438 35987 Quarter 4, 2016 39254

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