Consider the following estimated models of the consumption function: C = 220 + 0.83 Yd...

Consider the following estimated models of the consumption function:

C = 220 + 0.83 Yd - 0.075 P (2.1)

(3.54) (2.35)

R squared = 0.86

ln C = 315.25 + 0.75 ln Yd – 0.082 ln P (2.2)

(5.32) (3.26)

R squared = 0.965

(a)Explain the distinction between the estimated models (2.1) and (2.2)

(Read chapter 7 : “Choosing a Functional Form”)

(b)Interpret the coefficients of the income variable in both estimated models.

(c)In your opinion, which model produces more robust results ? Explain your opinion.

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Expert Solution

orchestra answered 1 year ago

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