THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
Consider the following model: Y = β₀ + β₁X₁_t + β₂X₂_t + γY_t_-1.Suppose we increase X₁ by one unit in time period t,with all other independent variables in the model held fixed.
-What is the expected increase in the dependent variable in time period (t + 2) ?

Question

Quizplus · Accepted Answer

The expected increase in the dependent variable in time period (t+2) can be calculated by taking the partial derivative of Y with respect to X₁ and then multiplying it by the change in X₁. This gives us: β₁γ². Hence, the best choice is B.