Answer to Question #234526 in Economics for Hulani Kwinda

Question

a. ) Calculate the covariance, that is, côv (X, Y) and the correlation coefficient (r). [ 4]

 Explain wh(ii) at côv (X, Y) and r measure. What is the dissimilarity between the two? [3]

b. You have decided to investigate the influence of money supply (M2) on inflation (CPI) more systematically, and therefore set up a simple linear regression model.

(i) Specify your model and find your parameter estimates (b₁and b₂) using the Ordinary Least Square method. Write down the equation of the regression line. [7]

(ii) Calculate the standard error of your estimated slope parameter        [8]

(iii) Calculate r² and explain in detail what r² tells you about your model. [3]

 

Answer 1

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