5 In the linear consumption function consoBinc. the (estimated) marginal propens

Question

5 In the linear consumption function consoBinc. the (estimated) marginal propensity to consume (MPC) out of income is simply the slope While the average propensity to consume (APC) is consinc = /inc + 1 Using observatio for 100 families on annual income and consumption (both measured in dollars), the following equation is obtained: cons =-124.84 + 0.853 inc n = 100, R2 = 0.692. G) Interpret the intercept in this equation, and comment on its sign and magnitude. (i) What is the predicted consumption when family income is $30.000 (ii) With inc on the x-axis, draw a graph of the estimated MPC and APC

Explanation / Answer

i) intercept = -124.84 , its sign is negative
it means consumption is -124.84 when income is 0 , which does not give any useful information

ii) when income = 30000
cons^ = -124.84 + 0.853 * 30000
= 25465.16

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