2.5 solution

Course: ARE 118, Fall 2008
School: Berkeley
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(i) 2.5 The intercept implies that when inc = 0, cons is predicted to be negative $124.84. This, of course, cannot be true, and reflects that fact that this consumption function might be a poor predictor of consumption at very low-income levels. On the other hand, on an annual basis, $124.84 is not so far from zero. (ii) Just plug 30,000 into the cons equation: = 124.84 + .853(30,000) = 25,465.16 dollars. (iii)...

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