In macroeconomics, the marginal propensity to consume (MPC) is the proportion of extra income that is spent on consumption, and it is important for determining the effects of monetary and fiscal policy. In this exercise, you will estimate the MPC with the slope from regression analysis. Your two variables are consumption and income. Which is the dependent variable and which is the independent variable? Income is independent variable. You have the following data on consumption and income (in $10,000s). Make a scatterplot. Income 9 11 5 8 2 9 12Consumption 7 7 2 7 2 8 9Draw your best guess for a line of best fit in your scatterplot above.

Guess the slope. .75 Guess the intercept. 0 Do consumption and income appear to have a high, moderate, or low correlation? High correlation, Rsquare is .8438, correlation is sqrt(.8438)=.919