10. A simple linear regression that describes the relationship between individua

Question

10. A simple linear regression that describes the relationship between individuals income and savings is given by log(savings)- -0.25 0.18 log(income), n=1000, R2= .314, where savings and income are measured in thousands of dollars. 1) How would you interpret R2? 2) How would you interpret the estimated soefficient for log[income)? 4 3) What would be the estimated coefficient on log(income) if income is measured in dollars? How would you interpret the estimated coefficient for log(income) in this case? 4) What would R2 equal if savings is measured in dollars?

Explanation / Answer

21) R2 tells that 31% of the variation in savings is explained by variation in income.

2) The coefficient tells that if income increases by 1% on an average savings increase by 0.18%.

3.The size of coefficient will decrease but the sign will remain same.

4) R2 will remain same.

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