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##### The questions are in the attached word document and the data for the questions is in the excel spreadsheet attached.

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solution

**Question**

Table 7.11 gives data for the manufacturing sector of the Greek economy for the;period 19611987.;A. See if the CobbDouglas production function fits the data given in the table and;interpret the results. What general conclusion do you draw?;B. Now consider the following model;Output/labor =;Where the regress and represents labor productivity and the repressor represents the;capital labor ratio. What is the economic significance of such a relationship, if any?;Estimate the parameters of this model and interpret your results.;7.24 Table 7.12 gives data for real consumption expenditure, real income, real;wealth, and real interest rates for the U.S. for the years 19472000. These data will be;used again for Exercise 8.35.;A. Given the data in the table, estimate the linear consumption function using income;wealth, and interest rate. What is the fitted equation?;B. What do the estimated coefficients indicate about the variables relationships to;consumption expenditure?;8.35 Refer to Exercise 7.24 and the data in Table 7.12 concerning four;economic variables in the U.S. from 19472000.;A. Based on the regression of consumption expenditure on real income, real wealth and;real interest rate, find out which of the regression coefficients are individually statistically;significant at the 5 percent level of significance. Are the signs of the estimated;coefficients in accord with economic theory?;B. Based on the results in (a), how would you estimate the income, wealth, and interest;rate elasticitys? What additional information, if any, do you need to compute the;elasticitys?;C. How would you test the hypothesis that the income and wealth elasticitys are the;same? Show the necessary calculations.;D. Suppose instead of the linear consumption function estimated in (a), you regress the;logarithm of consumption expenditure on the logarithms of income and wealth and the;interest rate. Show the regression results. How would you interpret the results?;E. What are the incomes and wealth elasticitys estimated in (d)? How would you;interpret the coefficient of the interest rate estimated in (d)?;F. In the regression in (d) could you have used the logarithm of the interest rate instead;of the interest rate? Why or why not?;G. How would you compare the elasticitys estimated in (b) and in (d)?;H. Between the regression models estimated in (a) and (d), which would you prefer?;Why?;I. Suppose instead of estimating the model given in (d), you only regress the logarithm of;consumption expenditure on the logarithm of income. How would you decide if it is worth;adding the logarithm of wealth in the model? And how would you decide if it is worth;adding both the logarithm of wealth and interest rate variables in the model?

Paper#15531 | Written in 18-Jul-2015

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