The consumption function captures one of the key relationships in economics that was first developed by John Maynard Keynes. It expresses consumption as a function of disposable income, where disposable income is income after taxes. The table below shows a portion of average U.S. annual consumption and disposable income for the years 1985–2006. The entire data set, labeled Consumption_Function, can be found on the text website.

a. Use Excel to estimate the model: Consumption = β0 + β1 Disposable Income + .
b. What is the sample regression equation?
c. In this model the slope coefficient is called the marginal propensity to consume. Interpret its meaning.
d. What is predicted consumption if disposable income is$57,000?

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Consumption Disposable Income 1985 1986 $23,490 23,866 $22,887 23,172 2006 48,398 58,101