What does least squares estimates mean


Problem

Using the data set macro, find the least squares estimate of the following two models:

Model A: Inves = ߈0 +߈1Interest

and

Model T:

Inves = ߈0 +߈1Interest +߈3GNP

a) What does "least squares estimates" mean? What is being estimated? What is being squared? In what sense are the squares "least"?

b) Give an interpretation of 1 ˆß in each equation.

c) Interpret the values of R2 in each equation. Is it possible for R2 to be negative?

d) Interpret the values of R 2in each equation. Is it possible for R 2to be negative?

e) Which model has estimated signs that correspond to your prior expectations? How do you explain the sign reversal on the coefficient of 1 ˆß ?

The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.

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Microeconomics: What does least squares estimates mean
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