a) A researcher would like to test whether the consumption expenditure would depend on the personal income in each of the past 4 quarters. To capture the idea of the lagged effect, specify a linear regression equation (with e to denote an error term, and subscripts t to denote the current quarter, t-1 to denote the last quarter and so on). (5 marks)

b) Assume there is no autocorrelation. Discuss any other potential problem(s) with the classical linear regression model in part (a), and the corresponding consequences on the overall significance of the model and individual significance of the estimates. (8 marks)