ECONOMETRICS

According to the United States information for 1965-IQ to 1983-IQ (n=76), James and Adibi obtained the following regression to explain personal consumption expenditure in the United States

^

Y = -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

a.What is the marginal propensity to consume(MPC)- the amount of additional consumption expenditure from an additional dollar’s personal disposable income?

b. Is the MPC statistically different from 1? show the appropriate testing procedure.

c. 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?

d. Is b(sub 3) significantly different from zero? Why?

e. Test the hypothesis that R^2 = 0. Show work.

f. Compute the standard error of each coefficient. Show work.