Assume that you have collected a sample of observations from over 100 households and their consumption and income patterns. Using these observations, you estimate the following regression C_i = ?₀+?₁Y_i+ u_iwhere C is consumption and Y is disposable income. The estimate of ?₁ will tell you A) $\frac { \Delta \text {Income } } { \Delta \text { Consumption } }$ B)The amount you need to consume to survive C) $\frac { \text { Income } } { \text { Consumption } }$ D) $\frac { \Delta \text { Consumption } } { \Delta \text { Income } }$

Question

Quizplus · Accepted Answer

The estimate of $\beta_1$ in a regression equation represents the change in the dependent variable (in this case, consumption $C$) for a one-unit change in the independent variable (in this case, disposable income $Y$). Therefore, it measures the marginal propensity to consume, which is the change in consumption ($\Delta Consumption$) for a change in income ($\Delta Income$), making option D correct.

Assume That You Have Collected a Sample of Observations from Over