Question

2004 Zone A Section B Question 4) The following model for the demand for food was estimated by ordinary least squares on aggregate UK data for 1971 to 1998. The dependent variable (food,) is the log of the total food expenditure at constant prices. = 6.792 + 0.30y, food, (0.318) (0.025) 0.112p, + û, (0.069) R T-28, = 0.967, standard errors given in brackets, where T is the sample size, y, is the log of disposable income at constant prices and p, is the log of the price of food relative to the price of all other goods and services. Ca Explain what is meant when a regression coefficient is described as being significant. Give an economic interpretation of the coefficients in the (b) model. e) Construct a 95% confidence interval for the coefficient of p.. 027 selon) Aeritmz (d) Test the hypothesis that the coefficient of y, is one. He: Bi: d Hi Bi#1 TeWhat assumptions about this model are required for the analysis in (c) and (d) to be correct? Give details.

Answer 1

3 4. we have food = 6.792 + 0.30 % - 0.112P 1 + Ut - Ca.) when a regression Co-efficiend is described as being Significant, It moms regression Co-efficient / Independent variable explain some Propontion of variation in the dependent variable. Ci.e) If Explanatory variable with positive regression Coethcient increases, then dependent variable also Increases Cb.) Economic Intezpretation - (B.) 0.30: It means, If Yt is increase by I one will then average valve of food it is increase by 0.003 unit. (B) - 0.112 - It means, If Pt is increase by one chit then average value of Foodt is decrease by 0.00112 mit . cc.) Confidence Interval [-0.112 -2.0518). (0.063), -0.112 + 02.05187.60.069 E0.2535, 0.0295] → C.I for Pt Cd.) HYPOThesis - Testing Hai He B = B. & 1 1 (Coeff. of Yt is one) other than one I

log oft - 0.30 - 1} spaar I t= 1.45 u. Ho Rejected .. we can say that, Coeff. 1.45 of Y+ is not equal to XITIT, I or other than to 2.0518 2.0518 (e.) The Essor team care required for to be connect. Ut is Normally - Distributed to the analysis in (c) and (d)