Problem: Based on the U.S data for 1965-IQ to 1983-IQ (n=76), James and Adibi obtained the folowwing regression to explain personal consumption expenditure in the U.S.
Yˆ = -10.96 + .93X(sub 2t) - 2.09X(sub 3t)
t = (-3.33) (249.06) (-3.09) R^2 = 0.9996
F = 83,753.7
where
Y = the PCE($, in billions)
X(sub 2) = the disposable (i.e. after-tax) income in billions
X(sub 3) = the prime rate (%) charged by banks
Question 1: What is the marginal propensity to consume(MPC)- the amount of additional consumption expenditure from an additional dollar's personal disposable income?
Question 2: Is the MPC statistically different from 1? show the appropriate testing procedure.
Question 3: What is the rationale for the inclusion of the prime rate variable in the model? A priori, would u expect a negative sign for this variable?
Question 4: Is b(sub 3) significantly different from zero? Why?
Question 5: Test the hypothesis that R^2 = 0. Show work.
Question 6: Compute the standard error of each coefficient. Show work.