Consumption. The consumption function, first developed by John Maynard Keynes, captures one of the key relationships in economics. It expresses consumption as a function of disposable income, where disposable income is income after taxes. The accompanying table shows a portion of quarterly data for average U.S. annual consumption (in $)

and disposable income (in $) for the years 2000–2016.

Date Consumption Income Q1, 2000 28634 31192 Q2, 2000 28837 31438

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Q4, 2016 35987 39254

a. Find the sample regression equation for the model, Consumption = β0 + β1Income + ε.

b. In this model, the slope coefficient is called the marginal propensity to consume. Interpret its meaning.

c. What is predicted consumption if disposable income is

$35,000?