Practice Question on Simple Regression Function Estimation and Related Concepts

(Reading Material – Chapter 1 & 2 of the TB)

ECON F241 – Econometric Methods

Question: The following table provides data for 10 households on their monthly consumption
expenditure (Y) and monthly Income (X):
Y (in ‘000) X (in ‘000)
70 80
65 100
90 120
95 140
110 160
115 180
120 200
140 220
155 240
150 260
a) Estimate the consumption function for the households.
b) Test the significance of the coefficients at 5 percent level of significance.
c) Consumption depends on many variables, not just income. Given this notion and based on the
knowledge gained from the course (till now) what estimator you will use to justify that income is
an important indicator of consumption?
d) Finally, report the required results in an interpretable way and interpret.
Note:
• Do it manually. You can confirm the results by estimating the same regression function through
statistical software (R or STATA).
• For practice on remaining estimators, you can calculate their values with the same data (in
addition to the four questions asked above).