Question

Economics: Data are available for a number of recent years for the U.S. economy. The objective is to understand the relationship between three economic indicators and the U.S. GDP: the interest rate on 10 year U.S. Treasury notes, the price of crude oil, and the amount of consumer debt. Therefore, a model was built to predict GDP using interest rate, price of crude oil, and consumer debt. Use the information listed below. y, Gross Domestic Product (GDP) (in trillions of USD) X1, Interest Rate on 10 Year Treasury Notes (as a proportion) X2, Price of Crude Oil (in USD per barrel) X3, Consumer Debt (in billions of USD) THE RAW DATA FOR THIS QUESTION ARE **NOT** AVAILABLE TO YOU. Use the output below to answer the following questions. ANOVA df SS 9.438 0.070 9.508 MS 3.146 0.006 F-Statistic 524.333 Regression Residual Total p-value <0.0001 Intercept Interest Rate Crude Oil Consumer Debt Coefficients Standard Error -0.580 0.181 -0.950 6.449 0.027 0.017 0.575 0.023 t-Statistic -3.204 -0.147 1.588 25.000 p-value 0.0076 0.8853 0.1382 <0.0001 a) By how much does the model estimate GDP would change due to a $1 Increase in the price of crude oil (assuming all other things are constant)? HINT: Because the question is asking for a change, enter a positive number for an increase in GDP or a negative number for a decrease in GDP. (Enter your answer to three decimal places.) trillions of USD b) By how much does the model estimate GDP would change for a $7.50 increase in the price of crude oil (assuming all other things are constant)? (Enter your answer to three decimal places.) trillions of USD c) By how much does the model estimate GDP would change due to a 1 billion dollar increase in consumer debt (assuming all other things are constant)? (Enter your answer to three decimal places.) trillions of USD

Answer 1

Answer a) 0.027 trillions of USD

Regression Coefficient of price of crude oil is 0.027. So $1 increase in price of crude oil increase GDP by 0.027 trillions of USD

Answer b) 0.203 trillions of USD

Regression Coefficient of price of Crude oil is 0.027.

So $7.5 increase in price of crude oil increase GDP by 0.027*7.5 = 0.2025 trillions of USD

Answer c) 0.575 trillions of USD

Regression Coefficient of consumer debt is 0.575. So, 1 billion dollar increase in consumer debt increases GDP by 0.575 trillions of USD

Answer d) 0.144 trillions of USD

Regression Coefficient of consumer debt is 0.575. So, $ 250,000,000 (0.250 billion dollar) increase in consumer debt, increases GDP by 0.575*0.25 = 0.144 trillions of USD

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