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4. (30 points) The following consumption function is estimated by using 20 observations: R2 = 0.900, SSR = 1200 C=400+ 0.8Y, (40) (0.2) where

 

4. (30 points) The following consumption function is estimated by using 20 observations: R2 = 0.900, SSR = 1200 C=400+ 0.8Y, (40) (0.2) where C = Consumption, C = Y-S, Y= Income, S = Saving. Standard errors in parentheses. It is known that the consumption function satisfies the Gauss-Markov assumptions. A researcher attempts to estimate the following Saving (S) equations: (1) S Yo + VY + U (2) S = B + BY + BC+ + U+ a) Consider Model 1. Compute V, R and the sum of the squared residuals (SSR). b) Consider Model 2. Compute B, B2, R and SSR. c) It is argued that the SSRs from the saving functions (1) and (2) are the same. True, False, or uncertain? Explain.

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