1) A research has assigned one of his companions to search the determinant of the consumption. The researcher thinks that the main determinants of consumption are disposable income, assets returns. So, he obtains annual data from 1830 to 1879 and estimates the following model: Model 1: = 10.5 +0.8Y4+ 0.5 At (0.45) (0.3) (0.2) R2=0.75 SSR= 22.78 T=50 Where, C represents consumption, Y is disposable income and A shows assets returns. a. Evaluate the model. Do you think that this is a good model to explain consumption? b. He reviews the research and suggest his companion to estimate the following model: Model 2: e= Bo+B1Y++ B2A4+B32 + B4 2 + ut R2 of the estimated model is 0.92. What is the reason behind this suggestion? Conduct relevant test and what can you say about the first model according to your result? 1) A research has assigned one of his companions to search the determinant of the consumption. The researcher thinks that the main determinants of consumption are disposable income, assets returns. So, he obtains annual data from 1830 to 1879 and estimates the following model: Model 1: = 10.5 +0.8Y4+ 0.5 At (0.45) (0.3) (0.2) R2=0.75 SSR= 22.78 T=50 Where, C represents consumption, Y is disposable income and A shows assets returns. a. Evaluate the model. Do you think that this is a good model to explain consumption? b. He reviews the research and suggest his companion to estimate the following model: Model 2: e= Bo+B1Y++ B2A4+B32 + B4 2 + ut R2 of the estimated model is 0.92. What is the reason behind this suggestion? Conduct relevant test and what can you say about the first model according to your result