Since Exercises use real data, they are best answered with technology.
Banking Two Harvard economists studied countries’ rela-tionships between the independence of banks and inflation rates from 1955 to 1990. The independence of banks was rated on a scale of −1.5 to 2.5, with −1.5, 0, and 2.5 corresponding to least, average, and most independence, respectively. The following table gives the values for var-ious countries. (Source: Harvard University; The World Bank)
Country | Independence Rating | Inflation Rate (%) |
New Zealand | −1.4 | 7.6 |
Italy | −.75 | 7.2 |
Belgium | .3 | 4.0 |
France | .4 | 6.0 |
Canada | .9 | 4.5 |
United States | 1.6 | 4.0 |
Switzerland | 2.2 | 3.1 |
(a) Use the method of least squares to obtain the straight line that best fits these data.
(b) What relationship between independence of banks and inflation is indicated by the least-squares line?
(c) Japan has a .6 independence rating. Use the leastsquares line to estimate Japan’s inflation rate.
(d) The inflation rate for Britain is 6.8. Use the leastsquares line to estimate Britain’s independence rating.
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