F I L E savings rate has declined dram atically over the past few decades (CNNMoney.com, June 3 0 , 2010). W hile some economists are extrem ely concerned about this decline, others believe th a t it is a nonissue. Consider the follow ing m onthly data on the personal savings rate (Savings) and the personal disposable incom e (Income) in the U.S. from January 2007 to November 2010; the com plete dataset, labeled Savings Rate, can be found on the text website.

Date Savings (%) Income ($ billions)

2007–01 2.2 10198.2 2007–02 2.3 10252.9 2010–11 5.5 11511.9 SOURCE: B u re a u o f E c o n o m ic A n a ly s is .

a. Compare the linear model, Savings = β 0 + β1 Income + ε , w ith a log-log model, In (Savings) = β0 + β1 ln (Income) + ε .

b. Interpret the estimated slope coefficient o f both models.

c. W hich is the preferred model? Explain.