The correlation between the log price of a Big Mac in 2003 and the log price of
ID: 3314124 • Letter: T
Question
The correlation between the log price of a Big Mac in 2003 and the log price of a Big Mac in 2009 is:
a- 0.7336
b- -0.8565
c- -0.7336
d- 0.8565
What is the average percent change in the price of a Big Mac in 2003 for a 1% increase in the price of a Big Mac in 2009?
a-80.3%
b-6.7%
c- 22.9%
d-64.3%
The Union Bank of Switzerland (UBS) produces regular reports on the prices and earnings in major cities throughout the world. Included in this report are the prices of basic commodities, reported in minutes of labor, including 1 kg of rice, a 1 kg loaf of bread, and a Big Mac, for 54 major cities around the world. An analyst is interested in understanding how prices have changed since the global financial crisis in 2007–2008. To do this, they wish to use the price of a Big Mac in 2003 to predict the price of a Big Mac in 2009.The regression output for the regression of log 2009 Big Mac prices on log 2003 Big Mac prices is given below.
Term Estimate Std. Error t value Prob > |t| Intercept 0.64031 0.22922 2.793 0.00728 log(bigmac2003) 0.80293 0.06709 11.967 < 0.0001 Reference: Ref 10-5
The correlation between the log price of a Big Mac in 2003 and the log price of a Big Mac in 2009 is:
a- 0.7336
b- -0.8565
c- -0.7336
d- 0.8565
What is the average percent change in the price of a Big Mac in 2003 for a 1% increase in the price of a Big Mac in 2009?
a-80.3%
b-6.7%
c- 22.9%
d-64.3%
Explanation / Answer
Q1) Correlation between the log price of a Big Mac in 2003 and the log price of a Big Mac in 2009 = SQRT(0.7336) = 0.8565 ( It will be positive, because slope cofficient is positive here)
So, Correct option is D
2)Average percent change in the price of a Big Mac in 2003 for a 1% increase in the price of a Big Mac in 2009 is 80.3%
Correct Option is A
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