statistics 2

posted by .

A Keynesian Consumption Function:

In his famous 1936 book, A General Theory of Employment, Interest and Money, the noted British economist John Maynard Keynes proposed a theoretical relationship between income and personal consumption expenditures. Keynes argued that as income went up, consumption would rise by a smaller amount. This theoretical has been empirically tested many times since 1936.

Milton Friedman, former professor of economics at the University of Chicago and winner of the Nobel Prize in economics, collected extensive data on income and consumption in the United States over a long period of time. Shown below are 10 observations on annual levels of consumption and income used by Friedman in his study. Using these data, derive a consumption function under the assumption that there exists a linear relationship between consumption and income. Figures are in billions of dollars.
________________________________________________________________
Year Income Consumption ________________________________________________________________

1 284.8 191.0
2 328.4 206.3
3 345.5 216.7
4 364.6 230.0
5 364.8 236.5
6 398.0 254.4
7 419.2 266.7
8 441.1 281.4
9 447.3 290.1
10 483.7 311.2
_________________________________________________________________

Determine the dependent and independent variable and calculate a consumption factor. Establish the relationship between income and consumption and interpret. Discuss the fit of the data and explain.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Economics

    Problem #2: A Consumption Function: C = Co + MPC(Yd). Suppose that autonomous consumption is inversely related to the interest rate. It follows that as… a. interest rate falls, consumption falls b. interest rate rises, saving falls …
  2. Economics

    4. Which of the following statements is false?
  3. US history

    Who was the economist whose ideas provided a theoretical justification of the New Deal?
  4. US history HELP

    Who was the economist whose ideas provided a theoretical justification of the New Deal?
  5. US history

    Who was the economist whose ideas provided a theoretical justification of the New Deal?
  6. Microeconomics

    If John's preferences are given by U(c,D)=log(c)+D where c is consumption and D is total donations and a wealthy individual sets up a matching fund campaign where John's total donation (D) is given by D=kd where k is the expansion …
  7. Macro

    Real Disposable (Billions) Consumption Expenditures (Billions) Savings (Billions) Income $100 $150 ____________ 200 200 ____________ 300 250 ____________ 400 300 ____________ a. Graph the consumption function with consumption spending …
  8. Economics

    Personal consumption expenditures $245 Net foreign factor income 4 Transfer payments 12 Rents 14 Statistical discrepancy 8 Consumption of fixed capital (depreciation) 27 Social Security contributions 20 Interest 13 Proprietors’ income …
  9. MCC

    3. (Consumption and Saving) Supposed that consumption equals $500 billion when disposable income is $0 and that each increase of $100 billion in disposable income causes consumption to increase by $70 billion. Draw the graph of the …
  10. Economics

    14. The life-cycle hypothesis and Permanent Income Hypothesis theories of consumption: A) are attempts to discredit the Keynesian consumption theory. B) believe that consumers do not have any autonomous consumption. C) assert that …

More Similar Questions