Question: In the Keynesian consumption function: the estimated marginal propensity to consume is , and the average propensity to consume is Using data on annual income and consumption (both of which were measured in £ sterling) from 200 UK households we found the following regression equation:
(a) Provide an interpretation of the constant in this equation and discuss its sign and magnitude.
(b) Calculate the predicted consumption of a hypothetical household with an annual income of £40,000.
(c) With on the x-axis, draw a graph of the estimated Marginal Propensity to Consumption (MPC) and Autonomous Consumption Path (ACP).