An economist has asked you to develop a regression model to predict consumption of service goods as a function of disposable personal income and other important variables. The data for your analysis are found in the data file Macro2010, which is described in the data dictionary in the chapter appendix. Use data from the period 1980.1 through 2010.4.
a. Estimate a regression model using only disposable personal income to predict consumption of service goods. Test for autocorrelation using the Durbin Watson statistic.
b. Estimate a multiple regression model using disposable personal income, total consumption lagged 1 period, and prime interest rate as additional predictors. Test for autocorrelation. Does this multiple regression model reduce the problem of autocorrelation?