The McGraw-Hill Series Economics essentials of economics brue, McConnell, and Flynn Essentials of Economics

log–lin model.
Later we will consider
a model in which the regressand is linear but the regressor(s) is logarithmic and call it a
lin–log model.
As these results show, the elasticity of EXPDUR with respect to PCEX is about 1.63, sug-
gesting that if total personal expenditure goes up by 1 percent, on average, the expendi-
ture on durable goods goes up by about 1.63 percent. Thus, expenditure on durable goods
is very responsive to changes in personal consumption expenditure. This is one reason why
producers of durable goods keep a keen eye on changes in personal income and personal
consumption expenditure. In Exercise 6.18, the reader is asked to carry out a similar exer-
cise for nondurable goods expenditure.
14
We add the error term because the compound interest formula will not hold exactly. Why we add
the error after the logarithmic transformation is explained in Sec. 6.8.
EXAMPLE 6.3
(
Continued
)
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Chapter 6
Extensions of the Two-Variable Linear Regression Model
163
Before we present the regression results, let us examine the properties of model (6.6.5).
In this model 
the slope coefficient measures the constant proportional or relative change
in Y for a given absolute change in the value of the regressor
(in this case the variable 
t
),
that is,
15
β
2
=
relative change in regressand
absolute change in regressor
(6.6.7)
If we multiply the relative change in
Y
by 100, Equation 6.6.7 will then give the percentage
change, or the
growth rate,
in
Y
for an absolute change in
X
, the regressor. That is, 100 times
β
2
gives the growth rate in
Y
; 100 times
β
2
is known in the literature as the