The savings rate has declined dramatically over the past few decades (CNNMoney.com, June 3 0 , 2010). While some economists are extremely concerned about this decline, others believe that it is a nonissue. Consider the following monthly data on the personal savings rate (Savings) and the personal disposable income (Income) in the U.S. from January 2007 to November 2010; the complete dataset, labeled Savings Rate, can be found on the text website.
a. Compare the linear model, Savings = β0 + β1 Income + ε, with a log-log model, In (Savings) = β0 + β1 ln (Income) + ε.
b. Interpret the estimated slope coefficient of both models.
c. Which is the preferred model? Explain.