A regression model for a consumption function shows how household consumption and GDP have historically been related. The numbers in brackets underneath are the standard errors of the regression model. The coefficient in front of GDP is called the marginal propensity to consume, or MPC, because it is how much consumption goes up when GDP goes up by one unit. C-205 + 0.7 GDP (18) (0.051) A researcher finds that the marginal propensity to consume changes if she adds the % change in a stock market index as a variable. C-193+ 0.65 GDP+ 0.08 (% change in stock price) (14) (0.12) (0.01) What is predicted consumption if GDP is 200 and if the share market falls by 20%? (you do not have to worry about any effects of multicollinearity) 393 193. 321.4 322.98
