Question

The best-fitting line for IMPORTS (U.S. imports of furniture, in $billions) and RATE (the interest rate on U.S. commercial paper) is:

            IMPORTS = 2.5 – 0.05 RATE.

• The slope of the line means that, on average, a 1% ["decrease", "increase"] in the U.S. commercial paper interest rate is associated with a ["2.5 $billion", "5 $billion", "50 $million"] increase in U.S. imports of furniture.
• The intercept of the line means that we expect about ["2.5 $billion", "5 $billion", "zero"] in U.S. imports of furniture when the U.S. rate on commercial paper is ["-0.05", "zero", "2.5"].

Please choose the correct answers from the options in the brackets.

Answer 1

Answer

Regression equation is

Imports = 2.5 - 0.05Rate

Slope of equation is -0.05, this means when rate increases by 1 unit, then imports will go down by 0.05 units (negative slope means that increase in independent variable will result in decreased dependent variable)

Intercept of equation is 2.5, this tells us that when independent variable,i.e. rate is 0, then the import is 2.5

• The slope of the line means that, on average, a 1% "decrease" in the U.S. commercial paper interest rate is associated with a "5 $billion" increase in U.S. imports of furniture.
• The intercept of the line means that we expect about "2.5 $billion" in U.S. imports of furniture when the U.S. rate on commercial paper is "zero"