# You are given a hypothetical data in Table 1. On weekly consumption expenditure (Y), weekly incom… 1 answer below »

You are given a hypothetical data in Table 1. On weekly

consumption expenditure (Y),

weekly income (X2) and Wealth (X3) all in dollars

Table 1 data on Consumption expenditure (Y), Weekly income (X2) and

Wealth (X3)

Y X2 X3

70 80 810

65 100 1009

90 120 1273

95 140 1425

110 160 1633

115 180 1876

120 200 2252

140 220 2201

155 240 2435

150 260 2686

a) Carry out an OLS regression of Y on X2 and X3.

b) From the result in (a), is there a collinearity in this model?

Explain?

c) Fit separate regressions of Y on X2 and Y on X3. What do these

regressions reveal?

d) Regress X3 On X2. What does this regression reveal?

e) If there is a severe collinearity show how you would or would

not remedy it?

f) Which of the four OLS models fit the data most?