TABLE 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 Table 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

TABLE 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 Table 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 indicates that 97.1% of the variation in consumption is explained by GDP alone. If including aggregate prices in a multiple regression increases the r² to 0.982, then the additional percentage explained is 98.2% - 97.1% = 1.1%.

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