You are given the hypothetical data in Table 8-6 on weekly consumption expenditure (Y), weekly income (X2),

Question:

You are given the hypothetical data in Table 8-6 on weekly consumption expenditure (Y), weekly income (X2), and wealth (X3), all in dollars.
a. Do an OLS regression of Y on X2 and X3.
b. Is there collinearity in this regression? How do you know?
c. Do separate regressions of Y on X2 and Y on X3. What do these regressions reveal?
d. Regress X3 on X2. What does this regression reveal?
e. If there is severe collinearity, would you drop one of the X variables? Why or why not?