Relationship Between Variables
Often we are interested in explaining a phenomenon using other factors. There are numerous methods for accomplishing this objective. When the phenomenon is quantitatively measurable, the solution is much easier and the methods are well established. One such method is regression.
In regression analysis, one variable (dependent variable) is explained by one or more variables (independent variables). Before explaining a regression model, presenting an example of a simple model for explaining consumption using income is beneficial. But we first need to define the economic concept marginal propensity to consume (MPC).
The marginal propensity to consume or MPC represents ...