Question: Table 12-6 (on the textbook's Web site) gives data on personal consumption expenditure (PCE) and personal disposable income (PDI) for the United States for 1970

Table 12-6 (on the textbook's Web site) gives data on personal consumption expenditure (PCE) and personal disposable income (PDI) for the United States for 1970 to 2007; all figures are in billions of dollars.
Estimate the following models:
PCEt = A1 + A2PDIt + ut
PCEt = B1 + B2PDI, + B3PCEt-1 + vt
a. Interpret the results of the two regressions.
b. What is the short- and long-run marginal propensity to consume (MPC)?

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1 P E t 11736 09614 PDI t t 703 19474 r 2 0999 2 P E t 1011 02041 PDI t 08256 PCE t 1 ... View full answer

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