Table 9.15 shows U.S. data for C = real per capita consumption and Y = real per capita disposable personal income.

a. Draw a scatter diagram.

b. Estimate the consumption function C = α + βY + ε.

c. Calculate the residuals e = C − (a + bY) for each year and make a scatter diagram with e on the vertical axis and the year on the horizontal axis.

d. Do you see anything in this residuals plot that suggests that the least squares assumptions might be violated?

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Table 9.15: Exercise 9.39 Y C Y C Y C 1960 10.86 9.87 1977 18.02 16.05 1994 24.52 22.47 1961 11.05 9.91 1978 18.67 16.58 1995 24.95 22.80 1962 11.41 10.24 1979 18.90 16.79 1996 25.47 23.33 1963 11.67 10.51 1980 18.86 16.54 1997 26.06 23.90 1964 12.34 10.99 1981 19.17 16.62 1998 27.30 24.86 1965 12.94 11.54 1982 19.41 16.69 1999 27.80 25.92 1966 13.47 12.05 1983 19.87 17.49 2000 28.90 26.94 1967 13.90 12.28 1984 21.11. 18.26 2001 29.30 27.39 1968 14.39 12.86 1985 21.57 19.04 2002 29.98 27.85 1969 14.71 13.21 1986 22.08 19.63 2003 30.45 28.37 1970 15.16 13.36 1987 22.25 20.06 2004 31.21 29.09 1971 15.64 13.70 1988 23.00 20.67 2005 31.34 29.79 1972 16.23 14.38 1989 23.38 21.06 2006 32.30 30.36 1973 17.17 14.95 1990 23.57 21.25 2007 32.68 30.87 1974 16.88 14.69 1991 23.45 21.00 2008 32.55 30.51 1975 17.09 14.88 1992 23.96 21.43 1976 17.60 15.56 1993 24.04 21.90