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

Part One
Single-Equation Regression Models
5.11. Refer to Exercise 1.7.
a.
Plot the data with impressions on the vertical axis and advertising expenditure on
the horizontal axis. What kind of relationship do you observe?
b.
Would it be appropriate to fit a bivariate linear regression model to the data? Why
or why not? If not, what type of regression model will you fit the data to? Do we
have the necessary tools to fit such a model?
c.
Suppose you do not plot the data and simply fit the bivariate regression model to
the data. Obtain the usual regression output. Save the results for a later look at this
problem.
5.12. Refer to Exercise 1.1.
a.
Plot the U.S. Consumer Price Index (CPI) against the Canadian CPI. What does
the plot show?
b.
Suppose you want to predict the U.S. CPI on the basis of the Canadian CPI.
Develop a suitable model.
c.
Test the hypothesis that there is no relationship between the two CPIs. Use
α
=
5%. If you reject the null hypothesis, does that mean the Canadian CPI
“causes” the U.S. CPI? Why or why not?
5.13. Refer to Problem 3.22.
a.
Estimate the two regressions given there, obtaining standard errors and the other
usual output.
b.
Test the hypothesis that the disturbances in the two regression models are
normally distributed.
c.
In the gold price regression, test the hypothesis that 
β
2
=
1, that is, there is a one-
to-one relationship between gold prices and CPI (i.e., gold is a perfect hedge). What
is the 
p
value of the estimated test statistic?
d.
Repeat step (
c
) for the NYSE Index regression. Is investment in the stock market
a perfect hedge against inflation? What is the null hypothesis you are testing?
What is its 
p
value?
e.
Between gold and stock, which investment would you choose? What is the basis
of your decision?
5.14. Table 5.6 gives data on GNP and four definitions of the money stock for the United
States for 1970–1983. Regressing GNP on the various definitions of money, we
obtain the results shown in Table 5.7. 
The monetarists or quantity theorists maintain that nominal income (i.e., nominal
GNP) is largely determined by changes in the quantity or the stock of money, although
there is no consensus as to the “right” definition of money. Given the results in the
preceding table, consider these questions:
a.
Which definition of money seems to be closely related to nominal GNP?
b.
Since the 
r
2
terms are uniformly high, does this fact mean that our choice for
definition of money does not matter?
c.
If the Fed wants to control the money supply, which one of these money measures
is a better target for that purpose? Can you tell from the regression results?
5.15. Suppose the equation of an