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Suppose you want to test whether monthly consumption expenditure cons (in thousand of USD) depends only on monthly income (inc) (in thousand of USD): cons
Suppose you want to test whether monthly consumption expenditure cons (in thousand of USD) depends only on monthly income (inc) (in thousand of USD): cons = c0 + f(inc) + u. where function f() is possibly non linear. Note: Autonomous consumption c0 is defined as a fixed expenditure that consumers must make even when they have no disposable income. Using a sample of U.S. citizens in 2015, you estimate the following two equations: cons = 1.345 + 1.017inc n = 482, R2 = .685 and cons = 1.442 + 1.263inc 0.278inc2 + .213wealth .213wealth2 n = 482, R2 = .793 where wealth (expressed in thousands of USD) represents the accumulation of value of the individual (houses, financial resources, cash, etc). i. Can you test, based on the provided information, whether the variable cons is solely influenced by monthly income inc and is not affected by the level of wealth? If so, conduct the test using the available information and comment on the findings. If not, explain why such a test cannot be made. [6 pts] Note: In the case you conduct the test, please specify the significance level you choose
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