In macroeconomics, the marginal propensity to consume (MPC) is the proportion of extra income that is spent on consumption, and it is important for determining the effects of monetary and fiscal policy. In this exercise, you will estimate the MPC with the slope from regression analysis. 1. Your two variables are consumption and income. Which is the dependent variable and which is the independent variable? 2. You have the following data on consumption and income (in $10,000s). Make a scatterplot. Income 9 Consumption 7 11 7 5 2 8 7 2 2 9 8 12 9 3. Draw your best guess for a line of best fit in your scatterplot above. a. Guess the slope. b. Guess the intercept. c. Do consumption and income appear to have a high, moderate, or low correlation? 4. Now you will estimate the slope and intercept. Fill in the table to start. Income ( xi ) Cons ( yi ) ( x i x ) 9 7 1 11 7 3 5 2 -3 8 7 0 2 2 -6 9 8 12 9 5. Calculate the slope and interpret it. ( y i y ) 1 1 -4 1 -4 2 (x i x )( y i y ) ( x ix ) 1 3 12 0 24 1 9 9 0 36 6. Calculate the intercept. Does the intercept make sense economically? 7. If a person's income is $40,000, how much do you predict that they will spend on consumption? 8. The R-squared, or coefficient of determination, from this regression is 0.844. Interpret the Rsquared. 9. Conduct a hypothesis for whether consumption and income are linearly related using =0.01 . The standard error of the slope is 0.144. Step 1: State the null and alternative hypotheses. Step 2: Choose the significance level. Step 3: Calculate the test statistic. Step 4: Find the critical value(s). Step 5: Compare the test statistic to the critical value(s). Step 6: State the conclusion