(3) Based on the US data for 1965-1Q to 1983-1V0(n=76), James Doti and Esmael Ad
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Question
(3) Based on the US data for 1965-1Q to 1983-1V0(n=76), James Doti and Esmael Adibi obtained the following regression to explain personal consumption expenditure (PCE) in the US Y-10.96+0.93X,-2.09X, t=(-3.33) (249.06) (-3.09) R2=0.9996 F=83,753.7 where Y= the PCE ($, in billion) x2= the disposable (ie., after-tax) income ($, in billions) x, the prime rate (%) charged by banks a. What is the marginal propensity to consume (MPC)-the amount of additional consumption expenditure from an additional dollar's personal disposable income? appropriate testing procedure variable in the model? A priori, would you expect a b. Is the MPC statistically different from 1? Show the c. What is the rationale for the inclusion of the prime rate negative sign for this variable? d. Is l, significantly different from zero? e. Test the hypothesis that R0 f. Compare the standard error of each coefficient (4) Use the formula to answer the following question: sq 0.55 0.33 0.12 18 16 1,200 9 12 32 What conclusion do you draw about the relationship between R and R' ?Explanation / Answer
a)
MPC = dY/dX2 = 0.93
b)
Follow the t-test as below:
H0: B2=0
H1: B20
The variable is not statistically significant because of the high value of standard error.
c)
Prime rate refers to the rate charged by banks for lending purposes by the people. Higher the interest rate, lower the loans. Since loans are like income for the people, lower the loans, lower the spending power and thus expenditure.
c)
Yes, because of the low value of standard error.
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