Use the data in Table 10.1 to answer these questions:

a. Estimate the equation C = α + βX + ε, where C is spending and X is the year.

Use your estimates to calculate predicted spending each year,  Theresiduals  are the detrended values of spending.b. Repeat the procedure in question a using income as the dependent variable.

c. Repeat the procedure in question a using wealth as the dependent variable.

d. Estimate a multiple regression model where the dependent variable is detrended spending and the explanatory variables are detrended income and detrended wealth.

e. How do the estimated coefficients in question d compare with the equation estimated in the chapter: C = −110.126 + 0.798Y + 0.026W?

Transcribed Image Text:

C = a+bX.