Question: Question 4 (19 Points) In the linear consumption function (cons = consuption and inc = income) consi = 0 + 1inc the (estimated) marginal propensity

Question 4 (19 Points) In the linear consumption function (cons = consuption and inc = income) consi = 0 + 1inc

the (estimated) marginal propensity to consume (MPC) out of income is simple the slope, 1, while the average propensity to consume (APC) is consi/inc = 0/inc + 1. Using observations for 100 families on annual income and consumption (both measured in Turkish liras), the following equation is obtained

consi = 124.84 + 0.853inc. a) Interpret the intercept in this equation, and comment on its sign and magnitude. Is it eco-

nomically meaningful? (7 Points)

b) Interpret the MPC (slope) in this equation, and comment on its sign and magnitude. Do you think the estimated parameter supports the economic thought on relationship between consumption-income and incomes diminishing marginal utility? (7 Points)

c) What is the predicted consumption when annual family income is 60.000TL. (5 Points)

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