Question: In the linear consumption function cons 5 b^ 0 1 b^ 1inc, the (estimated) marginal propensity to consume (MPC) out of income is simply the

In the linear consumption function cons 5 b^ 0 1 b^

1inc, the (estimated) marginal propensity to consume (MPC) out of income is simply the slope, b^

1, while the average propensity to consume (APC) is cons/inc 5 b^

0/inc 1 b^

1. Using observations for 100 families on annual income and consumption (both measured in dollars), the following equation is obtained:

con 5 2124.84 1 0.853 inc n5 100, R25 0.692.

(i) Interpret the intercept in this equation, and comment on its sign and magnitude.

(ii) What is the predicted consumption when family income is $30,000?

(iii) With inc on the x-axis, draw a graph of the estimated MPC and APC.

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