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Econometrics

Name

Institution

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Y=

- Taking the natural logs on both sides of the equation gives

ln

ln

_{ }

- How is generally interpreted as?

is interpreted as the partial elasticity of input with respect to output

- Write the estimated equation below

Since ,

Then the equation becomes;

ln

b2 + b3=1,

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b2 + b3>1 and

b2 + b3<1

- Interpret the coefficients, and in words b2 b3 in words.

The coefficients of b2 b3 are constants returns to scale that the response of output to a proportionate change in inputs.

- What is the nature of the returns to scale?

The nature of returns to scale either doubles the input that will double the input when the sum of b2 b3 is equal to 1, or the nature of returns to scale there are decreasing returns to scale if the sum of b2 b3 is less than 1 and there are increasing returns to scale when the sum of b2 b3 is greater than 1.

Purify;

- kwhi = b1 + b2(pelec)2i + b3(gnp)3i + ei, As did in class

PCE, Y | PDI, X2 | Time, X3 |

220.6 | 309.3 | 1956=1 |

288.1 | 316.1 | 1957=2 |

290.0 | 313.5 | 1958=3 |

307.3 | 333.0 | 1959=4 |

316.1 | 340.3 | 1960=5 |

322.5 | 350.5 | 1961=6 |

328.5 | 367.2 | 1962=7 |

353.3 | 381.2 | 1963=8 |

373.7 | 416.0 | 1964=9 |

397.7 | 434.8 | 1965=10 |

418.1 | 458.9 | 1966=11 |

430.1 | 477.5 | 1967=12 |

433.5 | 499.0 | 1968=13 |

469.1 | 513.5 | 1969=14 |

476.9 | 536.7 | 1970=15 |

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- Report your results below

Yi= 296.7 + 342.5

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**Null hypothesis for**B3:

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H0: B3=0 (says that holding X2 constant, personal disposable income has no linear influence on personal consumption expenditure,Y)

H2: B3 ≠ 0 (there is an influence)

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**References**

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