The standard Keynesian consumption function presented by the British economist John Maynard Keynes in his 1936 opus, The General Theory of Employment, Interest and Money, holds that a consumer's level of spending is a function of his income. Data in thousands of dollars for income and in hundreds of dollars for consumption were collected for several consumers and the resulting OLS model was estimated.

a. What is your estimated consumption if your income is 14? Now provide a 95% confidence interval for your consumption if your income is 14.

b. The coefficient of 0.736 is the marginal propensity to consume.
How do you interpret the value?

c. What happens to your consumption if you receive an additional $1,000 in income?

d. How would you describe the relationship between your income and your consumption? What percentage of any change in your consumption pattern is explained by changes in your income?
How do account for such a low percentage?

e. Are your findings significant at the 1% level of significance? At the 5% level?

f. What is the 92% interval estimate of consumption for a large number of people with an income of 14?

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Sums A- Means b. 555" I b- I S- - X 380.00 80 4.750 0.736 4.928 5.581818637 (X-X) 665.90 286.24 SS 8.324 (Y-V) 2585.195151515 SS (X-X)(Y-V) 210.5606 SS