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ECONOMETRIC

Table of ContentsQUESTION......................................................................................................................................3Hypothetical Data: Parts A and B..........................................................................................3Part (A): Simple Linear Regression Model............................................................................3(1)(b) Scatter diagram depicting Relationship between Total Consumption Expenditure andLevel of Wealth:.....................................................................................................................42.(a) Estimation and Interpretation of Regression by Ordinary Least Squares Method usingExcel:......................................................................................................................................52.(b) T-test conducted at 5% significance level.....................................................................53.(a)Determination of coefficient of determination and generating F-test output..................54.(a)Estimation and Interpretation of Regression by Ordinary Least Squares Method.........64.(b) T-test conducted at 5% significance level using Excel:................................................65.(a)generating F-test output using information in regression summary...............................76.Predicting total consumer expenditure using sample regression equation..........................7Part (B): Multiple Regression Model:..............................................................................................87.Linear Regression Data under Multiple Regression Model................................................89.Calculation of Coefficient of multiple determination.........................................................810. Testing null hypotheses at 5% significance level.............................................................911.Testing joint hypotheses at 5% significance level...........................................................1012: Findings..........................................................................................................................1013: Evaluation of the results.................................................................................................10APPENDIX:...................................................................................................................................12

QUESTIONHypothetical Data: Parts A and BThe table shown in Appendix provides data consisting of a dependent variable (Y), Totalconsumption expenditure on non-durables and services and two independent variables, AnnualDisposable Income and Level of Wealth.Part (A): Simple Linear Regression ModelSimple Linear Regression Model explains the relationship between two or morevariables, of which one is a dependent variable and other is independent variable. Independentvariables are denoted by letter X and dependent variables are denoted by letter Y. The relationbetween these two can be explained with the help of the equation Y=a+bx+c where, Y is thedependent variable; a is the intercept term; b denotes regression coefficient on independentvariable; x denotes independent variable and e denotes residual error. In order to drawconclusions easily, researchers usually take help of graphs such as Scatter diagrams.Scatter Diagrams:Scatter Diagrams are graphical representation of two variables that show any correlationbetween the variables. Generally, the first variable represents an independent variable (X) and adependent variable (Y), Total Consumption Expenditure in this case. The above sample takestwo independent variables for the value of X- Annual disposable income and Level of wealth.The scatter diagrams depicting the relationship between these independent variables andindependent variables has been shown below:(a) Scatter diagram depicting relationship between Total Consumption Expenditure and AnnualDisposable Income:

02004006008001000120001002003004005006007008009001000Annual Disposable IncomeTotalConsumptionExpenditureInterpretation:The X-axis plots Annual Disposable Income (independent variable) andY-axis plots Total Consumption Expenditure (dependent variable). The scatter diagram shows apositive correlation among the two variables as they are not scattered very far away from eachother. This straight line is called Linear Regression Line. It is clear from the scatter plot that asthe annual disposable income of an individual increases the correlation between the consumptionexpenditure and income gets weaker although remaining positive.(1)(b) Scatter diagram depicting Relationship between Total Consumption Expenditure andLevel of Wealth:050010001500200025003000350040004500500001002003004005006007008009001000Level Of WealthTotalConsumptionExpenditureInterpretation:The X-axis Plots Level of wealth (independent variable) and Y-axis plotsTotal Consumption Expenditure (dependent variable). At first, the scatter diagram shows a