Answer to Question #214163 in Macroeconomics for Anisha Radhika Kum

Question

general Government Investment Private Public Enterprises Investment 1980 4.61 20.78 1981 6.89 19.66 1982 5.48 18.12 1983 3.17 17.76 1984 2.97 14.12 1985 3.10 15.06 1986 2.96 11.77 1987 2.29 13.40 1988 2.54 9.52 1989 3.24 8.80 1990 3.27 9.25 1991 4.01 10.44 1992 2.99 8.47 1993 2.51 11.96 1994 2.58 9.41 1995 2.43 10.33 1996 2.99 13.71 1997 3.20 15.60 1998 3.37 23.58 1999 3.42 18.00 2000 2.91 12.46 2001 3.68 11.62 2002 4.56 14.61 2003 4.05 17.41 2004 3.44 15.06 2005 3.05 16.58 2006 3.21 13.92 2007 2.17 11.20 2008 2.56 18.30 2009 4.03 12.17 2010 2.88 13.00 2011 3.14 14.93 2012 3.47 11.45 2013 4.87 21.09 .d) In macroeconomics, you have learnt about crowding-out hypothesis (how government investment spending crowds out private investment spending).Estimate the necessary model to examine this.Report your estimated model and discuss if crowding–out hypothesis is supported.e) Interpret the coefficient of determination.f)Based on your estimation in part d)discuss if the model is suitable for prediction purposes.

Answer 1

a)The standard deviation of general government investment is 0.9696, whereas that of private public enterprises 3.8616. The investment variability of private public enterprise is greater than that of the general government.

b)The correlation between general government investment and private public enterprise investment is 0.5045, indicating a positive connection with high degree of relationship.

c)The scatter diagram demonstrates that the above two metrics have positive connection.