2 3 4 5 6 lob 19. Consider the following regression cquation for the United Stat

Question

2 3 4 5 6 lob 19. Consider the following regression cquation for the United States (standard errors P, 4.00-0.010PRP,+0.030PRB, +0.20YD, (0.005) (0.020 (0.04) R'0.98 n 29 n-K- where: Pt per capita pounds of pork consumed in time period i 29-5- PRP = the price of pork in time period t PRB, the price of beef in time period t YD- per capita disposable income in time periodt 29-9 25,of a. Hypothesize signs (ie, based on basic economic theory, what would you expect the signs to be?) and specify the appropriate null and alternative hypotheses for the coefficients of each ot variables. (6 points) b. Test your hypotheses on the above result using the t test at a 5% level ofsignificance (6 points) Re tee o 020

Explanation / Answer

Consider the given problem; here the estimated regression model is given below.

P = 4 – 0.010*PrP + 0.030*PrB + 0.20*Yd.

So, on the basis of the economic theory we can see that all the signs are correct, here “PrP” be the price of “Pork” so they should have negative relationship, and similarly, “beef” and “pork” are substitute to each other => they should have positive relationship between “PrP” and “PrB”.

Similarly there should have a positive relationship between the “Disposable Income” and “P”.

So, all the sign are making scene.

So, for “PrP”.

The Ho:b1=0 and the corresponding H1:b1 not= 0.

So, under “H0”, the corresponding suitable statistic be, “t = (-0.01)/0.005 = (-2).

So, under the corresponding “Ho” and level of significance as “5%”, the corresponding critical value is “t(0.05/2, 25)=2.06.

=> since mode(t) = 2 < 2.06, H0 will be accepted at 5% level of significance.

Now, for “PrB”.

  The Ho:b1=0 and the corresponding H1:b1 not= 0.

So, under “H0”, the corresponding suitable statistic be, “t = (0.03)/0.020 = 1.5.

So, under the corresponding “Ho” and level of significance as “5%”, the corresponding critical value is “t(0.05/2, 25)=2.06.

=> since mode(t) = 1.5 < 2.06, H0 will be accepted at 5% level of significance.

Now, for “Yd”.

The Ho:b1=0 and the corresponding H1:b1 not= 0.

So, under “H0”, the corresponding suitable statistic be, “t = 0.2/0.04 = 5.

So, under the corresponding “Ho” and level of significance as “5%”, the corresponding critical value is “t(0.05/2, 25)=2.06.

=> since mode(t) = 5 > 2.06, H0 will be rejected and “H1” will be accepted at 5% level of significance.

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