Question: The government wants consumers to have money to spend to

The government wants consumers to have money to spend to keep the economy moving, so it watches the national level of personal disposable income. The Federal Reserve wants to make sure that these same consumers do not get into too much debt. The variable Disposable Income tracks the money available to consumers to spend (in billions of dollars), and the variable Debt tracks the money owed by households in the retail credit market (not including mortgages, also in billions of dollars). Both series have been corrected for in๎€ation, are quarterly, and span the time period from 1980 through the third quarter of 2011.
(a) A timeplot is a scatterplot of the values in a sequence in chronological order. Generate timeplots of these two series. Do the series appear to be related?
(b) Make a scatterplot of Disposable Income on Debt. Does this plot reveal things that you could not tell from the timeplots? Does the white space rule suggest a need for care when looking at this relationship?
(c) Find the correlation between Disposable Income and Debt. Is the correlation a good summary of the relationship between these two series?
(d) Does the correlation imply that the government should try to lower the level of disposable income to get consumers to save more?

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  • CreatedJuly 14, 2015
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