Suppose you wish to estimate the marginal effect that income has on consumption for in a time-series for a given country.The static time-series model would be specified as
A) $\text { Consumption } _ { i } = \beta _ { 0 } + \beta _ { 1 } \text { Income } _ { i } + \beta _ { 2 } \text { Income } _ { i - 1 } + \varepsilon _ { t } \text {. }$
B) $\text { Consumption } _ { t } = \beta _ { 0 } + \beta _ { 1 } \text { Income } _ { t } + \varepsilon _ { t } \text {. }$
C) $\text { Consumption } _ { i } = \beta _ { 0 } + \beta _ { 1 } \text { Income } _ { i } + \varepsilon _ { i } \text {. }$
D) $\text { Consumption } _ { t } = \beta _ { 0 } + \beta _ { 1 } \text { Income } _ { t } + \beta _ { 2 } \text { Income } _ { t - 1 } + \varepsilon _ { t } \text {. }$

Question

Quizplus · Accepted Answer

The marginal effect of income on consumption can be estimated using a simple linear regression model with one independent variable. Therefore, the static time-series model should only include consumption and income for the current time period (t). Option B is the only choice that includes consumption and income for the current period only.

Suppose You Wish to Estimate the Marginal Effect That Income