Question 1:
The consumption function captures one of the key relationships in economic. It expresses
consumption as a function of disposal income, where disposal income is income after taxes. The
attached file “week 02 – Assignment – Dataset 1” shows data of average US annual consumption
(in $) and disposable income (in $) for the years 2000 to 2016.
1. Find the sample linear regression equation for the model
2. In this model, the slope coefficient is called the marginal propensity to consume.
Interpret its meaning
3. What is the predicted consumption if disposal income is $35,000?
Question 2:
A Realtor in Massachusetts is analyzing the relationship between the sale price of a home (in $),
it’s the square footage (in ft2), the number of bedrooms, the number of bathrooms, and a
colonial dummy variable (colonial equals 1 if a colonial-style home; 0 otherwise). The relater
collects data of 36 sales in Massachusetts for the analysis. The attached file “week 02 –
Assignment – Dataset 2” contains the data.
1. Estimate the linear regression model for the price.
2. Interpret the coefficients attached to area (square footage) and colonial.
3. Predict the price of a 2500 square foot colonial style home with three bedrooms and
two bathrooms.
Submit a Word or PDF file for your answers as well as the excel sheet
