2. Question 2: Suppose that you estimate a model of the aggregate annual retail
ID: 3058052 • Letter: 2
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2. Question 2: Suppose that you estimate a model of the aggregate annual retail sales of new cars that specifies that sales of new cars are a function of real disposable income, the average retail price of a car adjusted by the consumer price index, and the number of sports utility vehicles sold (you decide to add this independent variable to take account of the fact that some potential new car buyers purchase sports utility vehicles instead). You use the data (annual from 2000 to 2014) and obtain the following estimated regression equation: CARS, = 1.32 + 4.91 YD + 0.0012 PRICE,-7.14 SUVi (2.39) (0.00045) (71.40) where CARSnew car sales (in hundreds of thousands of units) in year t, YD real disposable income (in hundreds of billions of dollars), SUV the number of sports utility vehicles sold in year t (in millions). You expect the variable YD to have a positive coefficient and the variables PRICE and SUV to PRICE the average real price of a new car in year t (in dollars) have negative coefficients. Create and test the appropriate hypotheses to evaluate these expectations at the 5% level.Explanation / Answer
2. Question 2: Suppose that you estimate a model of the aggregate annual retail sales of new cars that specifies that sales of new cars are a function of real disposable income, the average retail price of a car adjusted by the consumer price index, and the number of sports utility vehicles sold (you decide to add this independent variable to take account of the fact that some potential new car buyers purchase sports utility vehicles instead). You use the data (annual from 2000 to 2014) and obtain the following estimated regression equation: CARS, = 1.32 + 4.91 YD + 0.0012 PRICE,-7.14 SUVi (2.39) (0.00045) (71.40) where CARSnew car sales (in hundreds of thousands of units) in year t, YD real disposable income (in hundreds of billions of dollars), SUV the number of sports utility vehicles sold in year t (in millions). You expect the variable YD to have a positive coefficient and the variables PRICE and SUV to PRICE the average real price of a new car in year t (in dollars) have negative coefficients. Create and test the appropriate hypotheses to evaluate these expectations at the 5% level.
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