1.

DATA The graphs including 1 explanatory variable and the dependent variable Y

FIGURE 1: Scatter Diagrams – 3 explanatory variables are plotted against the US GDP

90000 80000 70000 60000 50000 40000 30000 20000 10000 0 1920 1930 1940 1950 1960 1970 1980

Employment

80 70 60 50 40 30 20 10 0 1920 1930 1940 1950 1960 1970 1980

Real wage

100 90 80 70 60 50 40 30 20 10 0 1920 1930 1940 1950 1960 1970 1980 CPI 2. model specification From the data collected. . we first examine the linear model with four explanatory variables including:  Employment employee  Real wages dollars  CPI dollars Abbreviation-E Abbreviation RW unit: million of unit:million of unit:million of Abbreviation CPI Functional model test CV= The result from eview are as follow.

7010 0.6694 0.E.09642 -0.960787 0.957691 223.549471 Prob.74925 13.80991 0.753 13. Error 0.700098 -990.024782 63.0050 0.D.7343 310.0613 .0000 0.900 1087.980999 10.3534 0.7417 1902294.7417/3647. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter.950606 388. 0.THE LINEAR MODEL The linear model: Y=β1 + β2X2 + β3X3 + … + βnXn (When n is the number of explanatory variable) Table 1:Eview result linear regression of GDP and the 3 regressiors: Dependent Variable: GDP Method: Least Squares Date: 04/26/12 Time: 01:06 Sample: 1929 1970 Included observations: 42 Variable E RW CPI C R-squared Adjusted R-squared S.281703 3.486541 Mean dependent var S. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 0. Durbin-Watson stat CV= 223.90=0. -284.0149 3647.91475 13.5908 t-Statistic 2.42272 -1.008313 6.430339 -2.000000 Std.

2851 0.951182 0.70066 267.322968 -0. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter.366698 -2.190637 53. 0.954754 0.THE LOG-LOG MODEL The Log-log model: Log (Y)=β1 + β2 Log (X2) + β3 Log(X3)+ … + βnLog(Xn) Where n is the number of explanatory variables Table 2:Eview result LOG-LOG model of regression function of GDP and the 3 repressors: Dependent Variable: LNGDP Method: Least Squares Date: 04/26/12 Time: 01:19 Sample: 1929 1970 Included observations: 42 Variable LNE LNRW LNCPI C R-squared Adjusted R-squared S.615996 0.201206 -2.939448 Prob.0011 0.1938 0.D.174063 0.320570 -2.702241 t-Statistic 3.070829 0. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient 0.409072 Mean dependent var S.082974 -1.538915 10.3534 8.154325 0.306039 0.E. Durbin-Watson stat .078127 0.82964 -1.000000 Std.0000 0. Error 0.062718 1.599167 0.846086 -0.

0020 0.099572 Durbin-Watson stat 0.234356 49.0000 Mean dependent var 8.078532 0.0010 0.00868 THE LOG-LIN MODEL The Log-lin model: Log (Y)=β1 + β2 X2 + β3X3+ … + βnXn Where n is the number of explanatory variables Table 3:Eview result LOG-LIN model of regression function of GDP and the 3 regressors Dependent Variable: LNGDP Method: Least Squares Date: 04/26/12 Time: 01:23 Sample: 1929 1970 Included observations: 42 Variable E RW CPI C R-squared Adjusted R-squared S.154325=0.580889 -3.004610 6.939987 0.CV=0.92E-06 0. -2.160232 Schwarz criterion -1.001387 0.0000 0.20056 Prob.E.154325 S.557791 9.D. dependent var 0.324555 49.04E-05 0.136393 t-Statistic 3.994740 Hannan-Quinn criter. 0.36487 215.710601 0.0611 0. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient Std.944378 0. Error 1.396472 .000000 2.320570 Akaike info criterion -2.070829/8.002205 0.021124 -0.

83737 2.959996 217.962923 0.0001 3647.564791 Prob.154325=0.753 13.716 434.9766 192.6579 239.0000 0. Error 1419.000000 534.00963 THE LIN-LOG MODEL The Lin-log model: Y=β1 + β2 Log (X2) + β3 Log(X3)+ … + βnLog(Xn) Where n is the number of explanatory variables Table 4:Eview result LIN-LOG model of regression function of GDP and the 3 regressors.CV=0. of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient Std.900 1087.5578 328.4306 -23867.481542 Mean dependent var S.6469 5228.651 t-Statistic 2.0115 0.75389 0.D. Dependent Variable: GDP Method: Least Squares Date: 04/26/12 Time: 01:23 Sample: 1929 1970 Included observations: 42 Variable LNE LNRW LNCPI C R-squared Adjusted R-squared S.655313 10. dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter.255061 -4. Durbin-Watson stat .9677 0. 0.078532/8.E. -283.5610 1798645.85872 13.69323 13.0300 0.684 2600.70 0.

021124 percent of on average → It is predicted that the slope coefficient for that variable (β3^) take positive value 4.0596 Since CV is the criteria and CV corresponding with the LOG-LIN MODEL is the least out of 4 CVs We determine that LOG-LIN MODEL is the model best fit the data and well illustrates the relation between dependent variable and independent variables Conclusion: the model specification process ends with the following result: LOG(GDP)^= 6.021124 (REAL WAGE) – 0. the value of slope coefficient β3^= 0.5610/3647.04E – 05) (EMPLOYMENT) + 0.710601 indicates GDP on average if all independent variables are zero.5 percent of on average.021124 shows that one percent increase in real wage will lead GDP to increase by 0. the value of slope coefficient β4^ = -0. → It is predicted that the slope coefficient for that variable (β2^) take positive value 3.5 shows that the amount of employment increase by one unit will lead GDP to increase by 1. Intercept (β1^) = 6.CV=217.004610 shows that one percent increase in CPI will lead personal income to decrease by 0. 2.900=0. real wage and CPI are zero. so the value of intercept coefficient here is not meaningful. Holding other variables constant. the value of slope coefficient β2^ = 1. Holding other variables constant.004610 percent of on average .04E – 0. it is impossible that all values of employment.004610 (CPI) 3.04E – 0.710601 + (1. However. Results Interpret the results: 1. Holding other variables constant.

44% of variation in GDP are explained by the variation in 3 independent variables. .44%) shows that about 94. Moreover.944378 ( 94.→ It is predicted that the slope coefficient for that variable (β4^) take negative value 5. This value of coefficient of determination is relatively high indicating a fairly good model. R2 = 0.

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