In the following equation, gdp refers to gross domestic product, and FDI refers

ID: 3359419 • Letter: I

Question

In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment.

log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI

(0.13) (0.022) (0.017)

Which of the following statements is then true?

If gdp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant.

If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.

If bank credit increases by 1%, gdp increases by log(0.527)%, the level of FDI remaining constant.

If gdp increases by 1%, bank credit increases by log(0.527)%, the level of FDI remaining constant.

If gdp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant.

If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.

If bank credit increases by 1%, gdp increases by log(0.527)%, the level of FDI remaining constant.

If gdp increases by 1%, bank credit increases by log(0.527)%, the level of FDI remaining constant.

Answer) B if Bank credit increases by 1% then GDP increases by 0.527%

Options A and D both are invalid because GDP is a dependent variable.

let example:

bank credit =0.02 and exp(0.02)= 1.02020134

GDP= 2.65+ 0.527*1.02020134+ 0.222= 3.409646

The equation simply says While increasing of Bank credit by 1% GDP increses by 0.527%.

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