National open university of nigeria introduction to econometrics I eco 355

 
Example 2 
Given 
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The straight line equation above is a sample regression a analysis and it represent the 
aggregate (i.e. for the economy as a whole) Keynesian consumption function. As this 
equation shows the marginal propensity to consume (MPC) is about 0.71, suggesting that 
if income goes up by one naira, the average personal consumption expenditure (PCE) 
goes up by about 71 percents. From Keynesian theory, the MPC is less than 1. The 
intercept value of about – 184 billion naira. Of course, such, a mechanical interpretation 
of the intercept term does not make economic sense in the present instance because the 

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zero income value is out of range of values we are working with and does not represent a 
likely outcome. As we will see on many occasion, very often the intercept term may not 
make much economic sense. 
Therefore, in practice the intercept term may not be very meaningful although on 
occasions it can be very meaningful, in some analysis. The more meaningful value is the 
slope coefficient MPC in the present case. 
The 
value of 0.9984 means approximately 99 percent of the variation in the PCE is 
explained by variation in the GDP. Since 
at most can be 1, we can say that the 
regression line in the equation above fit our data extremely well; as you can see from that 
figure the actual data points are very tightly clustered around the estimated regression 
line. 
 
4.0 
CONCLUSION 
Coefficient of multiple determinations (
as been seen as an area of economic analysis 
that try to explain the variation in the dependent and independent variable in a 
simple/multiple regression analysis of ordinary least square method and it is one of the 
best instrument use to know whether a regression is spurious or not.