Question

1. Consider the following results of a simple regression model of dollar price of unleaded gas (dependent variable) and dollar price of crude oil (independent variable) and answer the following questions:

	Coefficient	t-statistics
Intercept	0.56	28.27
Crude Oil	0.0457	73.34

R-square = 0.87

a. What is the interpretation of coefficient for crude oil?

		Every 1% increase in crude price will cause unleaded gas price to increase by 4.57 cents.
		Every $1 increase in crude price will cause unleaded gas price to increase by 4.57 cents.
		Every 1% increase in crude price will cause unleaded gas price to increase by 4.57%.
		Every $1 increase in crude price will cause unleaded gas price to increase by 4.57 %.

b. What will be expected change in the price of unleaded gas if the crude oil price is expected to fall by 3%. The current price of crude oil and unleaded gas are $74 and $3.10 respectively?

		(3.27%)
		(2.25%)
		(3.85%)
		(2.89%)

c. What will be forecasted price of unleaded gas when the crude oil price is $90?

		$4.44
		$4.67
		$4.22
		$3.99

Answer 1

Every $1 increase in crude price will cause unleaded gas price to increase by 4.57 cents.

=(-74*3%*0.0457)/3.10=-3.273%

=0.56+0.0457*90=4.673