TABLE 14-3
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 Table 14-3, what is the predicted consumption level for an economy with GDP equal to $4 billion and an aggregate price index of 150?
A) $1.39 billion
B) $2.89 billion
C) $4.75 billion
D) $9.45 billion

Question

TABLE 14-3
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 Table 14-3, what is the predicted consumption level for an economy with GDP equal to $4 billion and an aggregate price index of 150?
A) $1.39 billion 
B) $2.89 billion 
C) $4.75 billion 
D) $9.45 billion

Quizplus · Accepted Answer

To find the predicted consumption level, we need to use the regression equation in the form of Y = a + b1X1 + b2X2 where Y is the dependent variable (consumption), X1 is the independent variable (GDP) and X2 is the independent variable (aggregate price index).

From the Excel output, we can see that the equation is: 
Y = -12.83 + 2.31X1 - 5.54X2

Substituting the given values of GDP = $4 billion and aggregate price index = 150:
Y = -12.83 + 2.31(4) - 5.54(150) = 2.89 billion

Therefore, the predicted consumption level for an economy with GDP equal to $4 billion and an aggregate price index of 150 is $2.89 billion.

TABLE 14-3 an Economist Is Interested to See How Consumption for an for an Economy