An economist is interested to see how consumption for an economy (in $ billions) is influenced by gross domestic product ($ billions) and aggregate price (consumer price index). Annual data from 30 years were collected. Which of the following would be the most appropriate analysis to perform?
A) Simple linear regression
B) Multiple linear regression
C) Exponential smoothing
D) Autoregressive modeling for trend fitting and forecasting

Question

Quizplus · Accepted Answer

Since we have two predictors (GDP and aggregate price) that can influence consumption, it is appropriate to use multiple linear regression to analyze the data. Both simple linear regression and exponential smoothing are not suitable for this scenario as simple linear regression can only accommodate one predictor, while exponential smoothing is a time series forecasting method. Autoregressive modeling may be used to capture trends over time, but it does not consider the impact of GDP and aggregate price on consumption. Therefore, multiple linear regression is the most appropriate analysis for this scenario.

An Economist Is Interested to See How Consumption for an Economy