Analyzing and understanding data is an important part of decision making. Econom

Question

Analyzing and understanding data is an important part of decision making. Econometrics is defined as the statistical methods used to analyze data and make informed decisions. For this assignment, you are required to research data related to an economic issue or situation relevant to your organization or a business organization in general. Use the Bureau of Economic Analysis websiteto choose data for this assignment. In addition, review the articles in Topic Materials relating to econometrics. Analyze the data you have selected to determine how to use them to make appropriate economic decisions for an organization. As you are analyzing the data, apply econometrics methods (linear regression, statistical mathematics, nonlinear regression, or another relevant model) to validate data and determine strategies and solutions for the economic data retrieved. Please review the "Sample Econometrics Problem" resource to assist you in completing this assignment. Write a summary (500-750 words) to discuss your data findings and the proposed solutions generated based on applying econometrics and analyzing the data. You are required to submit the selected data, methods for testing and validating data, and the economic decisions you have established based on analysis of the data.

Explanation / Answer

Dear sir / madam,

Uncertainty about the effects of policies on the economy arise because policymakers do not know the precise values of multipliers. The government is always uncertain about how the economy will react to policy changes,. In practice, government work with econometric models of the economy in estimating the effects of policy changes. An econometric model is a statistical description of the economy or some part of it.

Government uncertainty about the effects of policy arises partly because the govt. does not know the true model of the economy and partly because it does not know what expectations firms and consumers have. Our example is-

Reaction uncertainties- Suppose that in early 2020, because of weakness in the economy, the govt. decides to cut taxes. The tax cut is meant to be strictly temporary- a brief shot in the arm to get the economy moving and nothing more.

In figuring out how big a tax cut is needed, the govt. has to guess how the public will react to a temporary tax cut. One possible answer is that since the tax cut will be temporary, it will not affect long term income very much and thus not affect spending by much. That suggests that to be useful, a temporary tax cut would have to be large. Alternatively, perhaps consumers will believe that the tax cut will last much longer than the govt. says- after all, the public knows that raising taxes is difficult. In this case the marginal propensity to spend out of a tax cut announced as temporary would be larger. A smaller tax cut would be enough to raise spending a lot. If the govt. is wrong in its guess about consumers' reactions, it could destabilize rather than stabilize the economy.

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