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?

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