Consider the following models: Model I: Consumption i = B1 + B2 income i + ui Model
Question:
Model I: Consumption i = B1 + B2 income i + ui
Model II: Consumption i = A1 + A2 wealth i + vi
a. How would you decide which of the models is the "true" model?
b. Suppose you regress consumption on both income and wealth. How would this help you decide between the two models? Show the necessary details.
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a Although most intermediate macroeconomics textbooks analyze the Key...View the full answer
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