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NAME:____________________
TANSEY-MACRO
EXAM (Example)
July 17, 2016
Prime Rate and Percentage Change in Producer Price Index for the
U.S.
Prime Rate (% change per year)
20
18
16
14
12
10
8
6
4
2
0
0
2
4
6
8
10
12
14
16
18
20
% change in Producer Price Index
I. (20 points).
Above is the scattergram of the relationship between the prime
rate and the percentage change in the producer price index (%Chg PPI).
(a) (1pt) What is the best estimate of the relationship between the two variables? (circle
direct
inverse
one)
(b) The regression for this data is shown below:
Regression Statistics
Multiple R
0.466329
R Square
0.217462
Adjusted R
Square
0.198376
Standard Error
2.930296
Observations
43
ANOVA
df
Regression
Residual
Total
1
41
42
Intercept
% Chg PPI
Coefficients
6.535294
0.403932
SS
97.83306
352.0519
449.885
Standard
Error
0.684022
0.119668
MS
97.83306
8.586632
F
11.39365
Significance
F
0.001622
t Stat
9.554212
3.375448
P-value
5.5E-12
0.001622
Lower 95%
5.153883
0.162258
Upper
95%
7.916705
0.645606
1
Lower
95.0%
5.153883
0.162258
Upp
95.
7.91
0.64
2
(c)
(3 pts). Write down the explicit linear equation (with the regression estimates for
the parameters) of the equation relating the dependent variable of interest rates (i) to the
inflation rate (%^P)
i= 6.535294 +0.403932*(%^P)
(d) (1 pts) Is the relationship significant according to the regression equation?
(circle one)
Yes No
(e) (2 pts) How do you know that it is or is not significant based on the regression
results? T-test prob value .001622 or half that for one tail test
(f) (3 pts.) What percentage of the variation in the prime rate has been explained by
the percentage change in the producer price index according to the regression equation?
(write down the percentage in the blank)?
0.217462_
(g) (3 pts) What is the name of the economic law which the above regression is testing?
Law of one price (fisher effect)
(h)
(1 pts) Does the above regression confirm this law with the right sign at the 95%
Yes No
confidence level? (circle one)
(i)
(3 pts.) At this particular time in the economy is the relationship between these
two variables being maintained based on what you know from reading the media?
Yes, both low
(j) (4 pts) Based on where the two variables are today (so… where are the interest and
inflation rates today?) , and assuming that the homeostatic mechanism does characterize
the economy, which of the following predictions would be most likely to occur over the
next year (circle one):
*
The rate of decline currently of the GDP should become larger in magnitude.
*
The rate of decline currently of the GDP should become smaller in magnitude.
*
The rate of rise currently in the GDP should become larger in magnitude.
*
The rate of rise currently in the GDP should become smaller in magnitude.
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