The consumption function is one of the key relationships in economics, where consumption is a function of

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The consumption function is one of the key relationships in economics, where consumption is a function of disposable income. The accompanying table shows a portion of quarterly data for average U.S. annual consumption (Consumption in $) and disposable income (Income in $) for the years 2000 – 2016.

a. Estimate Consumption = β₀ + β₁Income + ɛ. Plot the residuals against time to determine if there is a possibility of correlated observations.

b. Discuss the consequences of correlated observations and suggest a possible remedy.

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Business Analytics Communicating With Numbers

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Authors: Sanjiv Jaggia, Alison Kelly, Kevin Lertwachara, Leida Chen

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Question Posted: Feb 16, 2023 04:04 AM

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The consumption function is one of the key relationships in economics, where consumption is a function of

Question:

Date Q1, 2000 Q2, 2000 E Q4, 2016 Consumption 28634 28837 1 35987 Income 31192 31438 ⠀ 39254

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a Relevant regression results b The scatterplot suggests a pr...View the full answer

Business Analytics Communicating With Numbers

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