Section 9-2 analyses the consumption function, and Box 9-1 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 ( https://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. c? 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?