Go to the Web site of the FRED economic data base and download the series for real personal disposable income per capita (series name A229RXO), the University of Michigan Survey of Consumers Index of Consumer Sentiment (series UMCSENT1) We will use this data series as our measure of consumer confidence. You will have to be careful to download both sets of data as a quarterly file. Place both series on the same spreadsheet.

a. Before you look at the data, can you think of any reason to expect consumer confidence to be related to disposable income? Can you think of reasons why consumer confidence would be unrelated to disposable income?

b. Plot the level of the index of consumer sentiment against the growth rate of disposable income per person. Is the relationship positive?

c. Plot the change in the index of consumer sentiment against the growth rate of disposable income per person. What does that relation look like? Focus on observations where the change in disposable income is less than \(0.2 \%\) in absolute value. Is the level of consumer sentiment changing? How would we interpret such observations?

d. Focus in on the years 2007, 2008, and 2009. How does the behavior of consumer sentiment from 2007 to 2008 compare to the usual behavior in consumer sentiment? Why? (Hint: The bankruptcy of Lehmann Brothers occurred in September 2008.) Does the fall in consumer sentiment anticipate the decline in real personal disposable income that accompanied the crisis?