When we use ordinary least squares to determine the relationship between changes in consumption and changes in both current and lagged income,we find that
A)only current income influences current consumption.
B)current income has no impact on current consumption.
C)consumption is not affected by income in any quarter.
D)current income, last quarter's income, and income two quarter's ago all have the same impact on current consumption.
E) current income has a greater impact on consumption than income lagged one quarter.

Question

Quizplus · Accepted Answer

Ordinary least squares (OLS) regression can reveal that current income typically has a more immediate and stronger impact on consumption compared to lagged income, reflecting the immediate availability of resources to spend. This is consistent with economic theories that suggest people adjust their spending more significantly with changes in their current income levels compared to past income levels.

When We Use Ordinary Least Squares to Determine the Relationship