In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment.
Log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI
(0)13) (0.022) (0.017)

Which of the following statements is then true?
A)If gdp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant.
B)If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.
C)If gdp increases by 1%, bank credit increases by log(0.527)%, the level of FDI remaining constant.
D)If bank credit increases by 1%, gdp increases by log(0.527)%, the level of FDI remaining constant.

Question

In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment. ​
Log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI
(0)13) (0.022) (0.017)
​
Which of the following statements is then true?
A)If gdp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant.
B)If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.
C)If gdp increases by 1%, bank credit increases by log(0.527)%, the level of FDI remaining constant.
D)If bank credit increases by 1%, gdp increases by log(0.527)%, the level of FDI remaining constant.

Quizplus · Accepted Answer

The coefficient of bank credit is 0.527, which means that a 1% increase in bank credit leads to a 0.527% increase in GDP, holding FDI constant. So, option B is the correct statement. Option A is the inverse of option B and is incorrect. Options C and D involve taking the logarithm of a coefficient, which is incorrect.

In the Following Equation, Gdp Refers to Gross Domestic Product