Answer to Question #273017 in Macroeconomics for Tendie

Question

Consider the regression output below for the relationship between price (X) and quantity demand for refrigerators in South Africa:

ln(y) = 10.58 — 0.23 ln(x)

𝑅2 = 0.38 N=28

(i) Write the original equation before it was transformed into log form. (2)

(ii) Which assumption is violated in this equation and why? (3)

(iii) What does the b2 coefficient measure in models of this nature? (2)

(iv) Interpret the b2 coefficient in the above equation and state whether it is in line with

economic theory. (3)

(v) Test the hypothesis that b2 =0 at the 5% level of significance. (6)

(vi) Test the hypothesis that 𝑅2 =0 at the 5% level of significance (i.e, F-test). (7)

(vii) Calculate the adjusted 𝑅2 and explain why it is always less than the normal 𝑅2.

Answer 1

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