Linear regression equation

 

The consumption function captures one of the key relationships in economics. It expresses consumption as a function of disposal income, where disposal income is income after taxes. The attached file “Regression Dataset” shows data of average US annual consumption (in $) and disposable income (in $) for the years 2000 to 2016.

1. Find the sample linear regression equation for the model

2. In this model, the slope coefficient is called the marginal propensity to consume. Interpret its meaning

3. What is the predicted consumption if disposal income is $33,000?

Sample Solution

Linear regression attempts to model the relationship between two variables by fitting a linear equation to observed data. One variable is considered to be an explanatory variable, and the other is considered to be a dependent variable. For example, a modeler might want to relate the weights of individuals to their heights using a linear regression model. A linear regression line has an equation of the form Y = a + bX, where X is the explanatory variable and Y is the dependent variable. The slope of the line is b, and a is the intercept (the value of y when x = o).

bachev came to power, he began to implement reforms in order to improve the Soviet economy. Despite these efforts, they ultimately led to the collapse of the Soviet Union. The desire for economic reform surfaced from the growing economic inequality within the Soviet Union. Wealth became focused within the elite, while the majority of Soviets were suffering; the standard of living in the Soviet Union was one third of the standard of living level in America and less than half of West Germany and France (Johnson & Raynes, 1984, page ii). Low standards of living generally guarantees unrest with populations because people are likely unsatisfied with their economic situation. The downfall of the Soviet Union is evidence of the fact that governments are unstable when their preferred system of economics is not capitalism.

 

 

Capitalism supports equality in nations, because capitalism supports equal opportunity vice versa. Capitalism is sustainable because it is often accompanied with socialist political policies. Equal opportunities give more people the means to support themselves. Though there may be economic inequality in capitalist states, there isn’t widespread poverty at the same level as in communist nations. This is because the people who are motivated enough to sustain themselves will find a way to achieve what they want.

Major financial support is provided under communist governments. Theoretically this is a beneficial policy, but realistically it isn’t as beneficial as it is intended to be. At least 20 percent of Soviets lived in poverty compared to 14 percent of Americans in 1988 (Fein, 1989). The average Soviet only has to dedicate 6 percent of their income to paying rent, whereas Americans dedicate 26 percent of their income to living expenses (Fein, 1989). The Soviets denounced the existence of poverty in their country up until Gorbachev’s leadership, and instead claimed that poverty was only brought on by capitalism. The large number of people who were experiencing economic hardships sought for change in the USSR. Despite Soviet officials claiming that the poverty was caused by laziness, many believe that poverty was brought on by the economic state of the USSR. T

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