Answered: In the linear consumption function…

Algebra & Trigonometry with Analytic Geometry

13th Edition

ISBN:9781133382119

Author:Swokowski

Publisher:Swokowski

Chapter7: Analytic Trigonometry

Section7.6: The Inverse Trigonometric Functions

Problem 91E

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In the linear consumption function

ˆcons=ˆβ0+ˆβ1inc,

The estimated marginal propensity to consume (MPC) out of income is simply the slope,ˆβ1,while the average propensity to consume (APC) isˆcons/inc=ˆβ0/inc+ˆβ1.

Using observationsfor 100 families on annual income and consumption (both measured in dollars), the followingequation is obtained:

ˆcons=-124.84 + 0.853inc

n= 100, R2= 0.692.

(a) Interpret the intercept in this equation, and comment on its sign and magnitude. Does it make logical sense ?

b. What is the predicted consumption when family income is $30,000?
c. With inc on the x-axis, draw a graph of the estimated MPC.

1. In the linear consumption function
cons B 0 B 1inc,
The estimated marginal propensity to consume (MPC) out of income is simply the slope,ß 1,
while the average propensity to consume (APC) is cons/inc 0/inc 3 1. Using observations
for 100 families on annual income and consumption (both measured in dollars), the following
equation is obtained:
côns = -124.84+0.853inc
n = 100, R
= 0. 692.
(a) Interpret the intercept in this equation, and comment on its sign and magnitude.

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