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Economics

The following model shows the consumption function given:

Ct = AD_t^β₂

Where A and β₂ are unknown constants and D is disposable income.
(a) Show how by taking logarithms of the above equation, a linear equation may be obtained.

(b) interpret β. The estimated model is given by:

log C_t = 55.78 + 0.764 log D_t

R² = 0.89, values in brackets represent t-ratios.

(c ) Interpret the above results

(d) What the reasons behind the existence of multicollinearity and comment on the measures that can be used to deal with such a problem?

(e) What are the assumptions underlying the Classical Linear Regression Model?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M9585640

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