TOPIC: SIMPLE LINEAR REGRESSION Consider following couples of variables and disc
ID: 1189908 • Letter: T
Question
TOPIC: SIMPLE LINEAR REGRESSION
Consider following couples of variables and discuss whether you expect to find positive, negative, or no correlation between them. In each of the positive and negative examples, indicate whether or not you expect the correlation to be strong or weak. (Please use SLR equations)
(a) earnings and education.
(b) productivity growth and initial level of per capita income for all countries of the world.
(c) employment and real wages.
(d) consumption and the (real) interest rate
Explanation / Answer
(a) There is strong positive correlation between education and earning. We could write the equation as:
Earning = a + b x education
(b) There is postive correlation between productivity growth and initial level of per capital income
(c) Employment levela nd real wages are negatively correlated. The greater the wage thelowe is teh employment level.
Employment = a -b x real wage
(d) There is very weak and negative correlation between consumption and interest . The greater the interest the lower is the money flow in the econmy and lower is consumption level
Consumption = a -b x interest rate
b will have lower value here showing weak correlation since it does not affect consumption directly.
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