In the linear consumption functioncons = βo + β1 inc the estimated marginal propensity to consume (MPC) out of income is simply the slope parameter,βˆ1, while the average propensity to consume (APC) is cons /inc =β0/inc + β1

In the linear consumption functioncons = βo + β1 inc

the estimated marginal propensity to consume (MPC) out of income is simply the slope parameter,βˆ1, while the average propensity to consume (APC) is cons /inc =β0/inc + β1.

Using observations on 100 families on annual income and consumption, which are both measured in dollars,

the following equation is obtained via OLS:

cons = −162.12 + 0.841inc

n = 100, R2 = 0.162

(a) Interpret the intercept in this equation, and comment on it sign and magnitude. Is the information

provided by the intercept useful?

(b) What is the predicted consumption when family income is $30,000?