Question

The following table shows the inflation rate and unemployment rate, both in percent, for the years 1981-2008. We will investigate some methods for predicting unemployment. 4.4 X (L1) y (L2) Year Inflation Unemployment 1981 8.9 7.6 1982 3.8 9.7 1983 3.8 9.6 1984 3.9 7.5 1985 3.8 7.2 1986 1.1 7 1987 6.2 1988 4.4 5.5 1989 4.6 5.3 1990 6.1 5.6 1991 3.1 6.8 1992 2.9 7.5 1993 2.7 6.9 1994 2.7 6.1 1995 2.5 5.6 1996 5.4 1997 1.7 4.9 1998 1.6 4.5 1999 2.7 4.2 2000 3.4 4 2001 1.6 4.7 2002 2.4 5.8 2003 1.9 6 2004 3.3 5.5 2005 3.4 5.1 2006 4.6 2007 4.1 4.6 2008 0.1 5.8 3.3 2.5 Enter inflation data into L1 and unemployment data into L2. Be sure to check that the last entries match up correctly. You should have 28 matched entries in L1 and L2: L3 L3 L1 2.4 1.9 LZ 5.B L1 LZ 7.6 3.0 9.7 9.6 3.9 3.6 1.1 4.4 6.2 L101)=8.9 L162B) = 1 a. Construct a scatterplot of unemployment (v) versus inflation (x).

Answer 1

L1	L2
8.9	7.6
3.8	9.7
3.8	9.6
3.9	7.5
3.8	7.2
1.1	7
4.4	6.2
4.4	5.5
4.6	5.3
6.1	5.6
3.1	6.8
2.9	7.5
2.7	6.9
2.7	6.1
2.5	5.6
3.3	5.4
1.7	4.9
1.6	4.5
2.7	4.2
3.4	4
1.6	4.7
2.4	5.8
1.9	6
3.3	5.5
3.4	5.1
2.5	4.6
4.1	4.6
0.1	5.8

a.

steps (excel):

Enter data > select data > insert > scatterplot > add trendline and R-sq > ok

L2 vs L1 12 10 y = 0.2267x + 5.3086 R = 0.0671 . 8 6 4 2 0 0 2 4 6 8 10

b. The pattern is scattered , there does not seem strong linearity

c. Equation:

steps: (excel)

Enter data > data > data analysis > regression> enter y and x > ok

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.259021
R Square	0.067092
Adjusted R Square	0.031211
Standard Error	1.42343
Observations	28
ANOVA
	df	SS	MS	F	Significance F
Regression	1	3.788577	3.788577	1.869837	0.183199	not significant
Residual	26	52.67999	2.026154
Total	27	56.46857
	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%
Intercept	5.308555	0.600608	8.83864	2.6E-09	4.073988	6.543122
X Variable 1	0.226686	0.165777	1.36742	0.183199	-0.11407	0.567445

y = 0.2267x + 5.0386

Now,

d. When inflation = 3%,

y = 0.2267*3+5.0386 = 5.7187 is the unemployment

e. Correlation :

0.259021

i.e., weak and postive

Please rate my answer and comment for doubt.