1. You have the following data on consumption and income (in $10,000s). Make a s
ID: 3365278 • Letter: 1
Question
1. You have the following data on consumption and income (in $10,000s). Make a scatterplot.
Income
9
11
5
8
2
9
12
Consumption
7
7
2
7
2
8
9
1B) Draw your best guess for a line of best fit in your scatterplot above.
A- Guess the slope.
B- Guess the intercept.
C- Do consumption and income appear to have a high, moderate, or low correlation?
1C) Now you will estimate the slope and intercept. Fill in the table to start.
Income ()
Cons ()
9
7
1
1
1
1
11
7
3
1
3
9
5
2
-3
-4
12
9
8
7
0
1
0
0
2
2
-6
-4
24
36
9
8
12
9
1D) Calculate the slope and interpret it.
1E)Calculate the intercept. Does the intercept make sense economically?
1F) If a person’s income is $40,000, how much do you predict that they will spend on consumption?
1G) The R-squared, or coefficient of determination, from this regression is 0.844. Interpret the R-squared.
Income
9
11
5
8
2
9
12
Consumption
7
7
2
7
2
8
9
Explanation / Answer
consumption ^ = 0 + 0.75* income {intercept is 0)
1c) high correlation
1d) slope = 0.75 , which mean when income increase by 1 unit, consumption increase by 0.75 units
1e) intercept = 0 , when income =0 , consumption on average = intercept = 0
1f)
income = 40000
hence consumption = 0.75*40000 = 30000
1g) R^2 = 0.844
it means 84.4 % of variation in consumption is eplained by this model
SUMMARY OUTPUT Regression Statistics Multiple R 0.918558654 R Square 0.84375 Adjusted R Square 0.8125 Standard Error 1.224744871 Observations 7 ANOVA df SS MS F Significance F Regression 1 40.5 40.5 27 0.003478 Residual 5 7.5 1.5 Total 6 48 Coefficients Standard Error t Stat P-value Lower 95% Intercept 0 1.244033379 0 1 -3.19789 income 0.75 0.144337567 5.196152423 0.003478165 0.378968Related Questions
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