Download monthly data on real personal consumption expenditures and real disposable personal income from the Federal Reserve Economic Database (FRED) of the St. Louis Fed (research.stlouisfed.org/fred2). Take a sample starting on 1959:01 and continuing to the most recent month.
a. Calculate the growth rates of real consumption and disposable personal income and plot the data (simply calculate changes in natural-log). How do you compare the level of volatility on consumption growth with that of income growth? Can you explain it with your knowledge of macroeconom¬ics?
b. Regress consumption growth on disposable income growth. Interpret the estimated equation and discuss statistical significance.
c. Add a lag of the growth in disposable income to the equation that you esti¬mated in b. Based on your estimates, comment on the possibility of an adjust¬ment lag in consumption growth.