When We Estimate a Regression to Determine the Relationship Between

question 8

Multiple Choice

When we estimate a regression to determine the relationship between changes in consumption and changes in current income,we find that

• A)there are no residuals.
• B)the R² is zero.
• C)the MPC is larger than one.
• D)all of the above
• E) none of the above

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Definitions:

Consumer Spending

The total expenditures by households on goods and services, excluding new housing, which drives a significant portion of economic activity.

Income

The amount of money received on a regular basis through work or investments.

Multiplier Effect

The relative change in net income resulting from an addition or reduction in expenditure.

Crowding out

A situation in economics where increased government spending displaces private sector spending, either through higher taxes, higher interest rates, or borrowing.