Assume the following: Y i = 1 + 2 X 2i + 3 X
Question:
Assume the following:
Yi = β1 + β2X2i + β3X3i + β4X2i X3i + ui
where Y is personal consumption expenditure, X2 is personal income, and X3 is personal wealth. The term (X2i X3i ) is known as the interaction term. What is meant by this expression? How would you test the hypothesis that the marginal propensity to consume (MPC) (i.e., β2) is independent of the wealth of the consumer?
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The best way to understand this term is to find out the rate of cha...View the full answer
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