When we estimate a regression to determine the relationship between changes in consumption and changes in current income,we find that
A)there are no residuals.
B)the R2 is zero.
C)the MPC is larger than one.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A regression model with no residuals or an R2 of zero implies that there is no relationship between the two variables being studied. It is not logically possible for the MPC (marginal propensity to consume) to be greater than one, as this would imply that for every additional dollar of income, individuals are spending more than a dollar, which is not possible. Therefore, none of the options presented are plausible or valid.

When We Estimate a Regression to Determine the Relationship Between