Keynesian consumption function expresses consumption as a function of disposable income.Specifically, it statesConst = B0 + B1 YDt + Ut,where: Const: aggregate personal consumer expenditures (PCE) in year t.YDt: Disposable income in year t.B1 is called the marginal propensity to consumer (MPC). Economists have found that the value ofMPC differs in the short run and the long run. Economists also found that in the long run the properform of the consumption function is:Const = B1 YDt + utUsing the “Consumption fn Data” file posted on part 2 of this question, estimate the consumption function in theU.S. You need to run two regressions:• Using 1960 to 1980 data (include all 1960 and 1980 data in the regression), estimate theshort run consumption function in the U.S.• Using all the data set, estimate the long run consumption function in the U.S.Part 1 of 2
Keynesian consumption function expresses consumption as a function of disposable income.
Specifically, it states
Const = B0 + B1 YDt + Ut,
where: Const: aggregate personal consumer expenditures (PCE) in year t.
YDt: Disposable income in year t.
B1 is called the marginal propensity to consumer (MPC). Economists have found that the value of
MPC differs in the short run and the long run. Economists also found that in the long run the proper
form of the consumption function is:
Const = B1 YDt + ut
Using the “Consumption fn Data” file posted on part 2 of this question, estimate the consumption function in the
U.S. You need to run two regressions:
• Using 1960 to 1980 data (include all 1960 and 1980 data in the regression), estimate the
short run consumption function in the U.S.
• Using all the data set, estimate the long run consumption function in the U.S.
Part 1 of 2
Step by step
Solved in 2 steps
