Macroeconomics 12th Edition by Rudiger Dornbusch ,Stanley Fischer,Richard Startz

Exercise 2

Section 10-2 analyses the consumption function, and What More Do We Know 10-1 shows that the consumption function holds in practice for the United States. In this exercise you will derive a consumption function for Australia.
a. Go to the Penn World Tables ( http://pwt.econ.upenn.edu ). Click on "Penn World Table" and then "Data Download." Download Australian data for:
• Real Gross Domestic Income (RGDPL adjusted for Terms of Trade changes).
• Consumption Share of Real GDP per capita (RGDPL) and Real GDP per capita (Constant Prices: Chain series). ( Note: To get total consumption per capita, you will need to multiply consumption share of real GDP by real GDP.)
b. Create a scatterplot that has Real Gross Domestic Income per capita on the X axis and Total Consumption per capita on the Y axis. What is the relationship between consumption and income in Australia Visually, on average by how much would an increase of AU$10 billion in income affect consumption Using your answer, compute the marginal propensity to consume for Australia.
*c. If you have taken a statistics class, use EXCEL or a statistical program in order to run the following regression:

What is the implied slope What does it mean Is it statistically significant