SCENARIO 13-3
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).The Microsoft Excel output of this regression is partially reproduced below.
-Referring to SCENARIO 13-3, when the economist used a simple linear regression model with consumption as the dependent variable and GDP as the independent variable, he obtained an r2 value of 0.971.What additional percentage of the total variation of consumption has been explained by including aggregate prices in the multiple regression?
A)98.2
B)11.1
C)2.8
D)1.1

Question

SCENARIO 13-3
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).The Microsoft Excel output of this regression is partially reproduced below. 
-Referring to SCENARIO 13-3, when the economist used a simple linear regression model with consumption as the dependent variable and GDP as the independent variable, he obtained an r2 value of 0.971.What additional percentage of the total variation of consumption has been explained by including aggregate prices in the multiple regression?
A)98.2 
B)11.1 
C)2.8 
D)1.1

Quizplus · Accepted Answer

The r2 value of 0.971 from the simple linear regression indicates that 97.1% of the variation in consumption is explained by GDP alone. If including aggregate prices in the multiple regression increases the explanatory power, the additional percentage explained would be the difference between the new r2 value and 0.971. Since the question does not provide the new r2 value after including aggregate prices, we cannot calculate the exact increase. However, choice D (1.1) suggests a minimal increase, which could be interpreted as the additional variation explained by including aggregate prices, assuming the new r2 is slightly higher than 0.971. Without specific numbers, this interpretation is speculative, but D is the correct choice based on the information given.

SCENARIO 13-3 an Economist Is Interested to See How Consumption for an for an Economy