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Estimate a consumption function for the UK economy explaining the economic theory and statistical techniques you have used.
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Estimate a consumption function for the UK economy explaining the economic theory and statistical techniques you have used. Consumption has been considered as the most important single element in aggregate demand, accounting for almost 66% of GDP in 1989. Therefore, it is essential that the level of consumption be predicted accurately, for even a small percentage error may lead to a large absolute error. Another reason why consumption such important is that the marginal propensity of consume is one of the factor which is used to determine the size of the multiplier. This will influence the changes of investment and government spending. Moreover, as saving ratio, another factor that used to predict the behavior of consumers, has fluctuated rapidly during these years, so the consumption become more important. Thus, many economists attempt to develop many theories and equations to predict consumers' expenditure. Therefore, in this project, there are two main theories...
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