3) Suppose you estimate the consumption function Y = a₁ + ax + u₁ And the savings function Z₁ =B₁ + B₂X+U₂ where Y = consumption, Z = savings, X = income, and X = Y + Z, that is, income is equal to consumption plus savings. a) What is the relationship, if any, between a, and B,? Show your calculations. b) Will the residual sum of squares, RSS, be the same for the two models? Explain. c) Can you compare the R² terms of the two models? Why or why not?

3) Suppose you estimate the consumption function Y = a₁ + ax + u₁ And the savings function Z₁ =B₁ + B₂X+U₂ where Y = consumption, Z = savings, X = income, and X = Y + Z, that is, income is equal to consumption plus savings. a) What is the relationship, if any, between a, and B,? Show your calculations. b) Will the residual sum of squares, RSS, be the same for the two models? Explain. c) Can you compare the R² terms of the two models? Why or why not?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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