National open university of nigeria introduction to econometrics I eco 355

P
CE
 (
y
) 
GDP (x) 

---

21 
6158.7billion dollars. Putting this GDP figure on the right-hand side of equation (3), we 
obtain 
̂
Therefore 
̂
̂
or about 4944 billion naira. Thus given the value of the GDP, the mean or average, 
forecast consumption expenditure is about 4944 billion naira. The actual value of the 
consumption expenditure reported in 1997 was 4913.5 billion naira. The estimated model 
(in equation 3) thus over predicted the actual consumption expenditure by about 30.76 
billion naira. We could say that forecast error is about 30.76 billion naira, which is about 
0.74 percent of the actual GDP value for 1997. 
8. 
Use of the Model for Control or Policy Purpose 
Let us assume that we have already estimated a consumption function given in equation 
(3). Suppose further the government believes that consumer expenditure of about say 
4900 (billion of 1992 naira) will keep the unemployment rate at its current level of about 
4.2 percent (early 2000). What level of income will guarantee the target amount of 
consumption expenditure? If the regression result given in equation (3) seem reasonable, 
sample arithmetic will show that 4900 = – 144.06 + 0.8262x ______________ (5).
Which gives x = 6105, approximately. That is, an income levels of about 6105 (billion) 
naira, given an MPC of about 0.83, will produce (10) an expenditure of about 4900 
billion naira. 
From the analysis above, an estimated model may be used for control or policy purposes. 
By appropriate fiscal and monetary policy mix, the government can manipulate the 
control variable x to produce the desired level of the target variable y. 
 
4.0 
CONCLUSION 
Stages of econometrics analysis are the process of getting on economic theory, subject it 
to empirical model, and then make use of data, estimation, and hypothesis and policy 
recommendation.