You estimate the following regression model: ????? ? = 30 + 0.82???? + 0.24?????? Where CONS = Total Consumption Expenditure in year t INC = Per Capita GDP in year t IRATE = Interest Rate in year t N = 35 R2 = 0.78 (a) Interpret the coefficients of INC and IRATE (b) The residual plot shows a funnel shape. What does this indicate about the model? (c) Assume that you obtain R2=0.56 from an equation regressing INC on IRATE. Use the VIF to check for multicollinearity. (d) Discuss possible transformations that can be used to improve the model. (e) Assume that you obtain R2 = 0.86 from the auxiliary equation using the coefficients and their squared terms (ignoring the cross products). Test for heteroscedasticity using the White Test at the 5% level of significance.

You estimate the following regression model: CONS -= 30 + O.82INC. + O.24/RATE; Where CONS = Total Consumption Expenditure in year t INC = Per Capita GDP in year t IRATE = Interest Rate in year t N= 35 R?= 0.78 (a) Interpret the coefficients of INC and IRATE (b) The residual plot shows a funnel shape. What does this indicate about the model? (c) Assume that you obtain R*=0.56 from an equation regressing INC on IRATE. Use the VIF to check for multicollinearity. (d) Discuss possible transformations that can be used to improve the model. (e) Assure that you obtain R?= 0.86 from the auxiliary equation using the coefficients and their squared terms (ignoring the cross products). Test for heteroscedasticity using the White Test at the 5% level of significance