An economic researcher estimates the following regression between the annual income, I, of a family and the amount it spends on consumption goods, C:
C = 2,000 + 0.65 I + error term -
If the R-square of the regression is just 0.3, estimate the amount that a family with an income of 50,000 will spend on consumption.
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A. B. C. D.A
With the given regression, the amount that a family with an income of 50,000 will spend on consumption equals 2,000 + 0.65*50,000 = 34,500.
To estimate the amount that a family with an income of $50,000 will spend on consumption, we can use the regression equation provided:
C = 2,000 + 0.65I + error term
Here, C represents the amount spent on consumption goods and I represents the annual income of the family. The coefficient 0.65 indicates that for every unit increase in income, the amount spent on consumption goods increases by 0.65 units.
To estimate the amount of consumption expenditure for a family with an income of $50,000, we substitute this value into the regression equation:
C = 2,000 + 0.65(50,000) + error term C = 2,000 + 32,500 + error term C = 34,500 + error term
The estimated amount of consumption expenditure for a family with an income of $50,000 is $34,500.
Therefore, the correct answer is A. $34,500.