Recall from introductory economics that an increase of $1 in government spending may increase GDP by more than $1. The exact amount by which GDP goes up is the multiplier. Using a sample of 41 observations, we estimate the multiplier; its estimated value is 4.0 and its standard error is .4.
a) Find a 90 percent confidence interval, a 95 percent confidence interval, and a percent confidence interval for the true value of the multiplier.
b) Would you believe that the value of the multiplier was 4.2? Would you believe that it was 2.8?
c) If government spending increases bt $20 billion, how much do you predict that GDP will rise? Find an interval in which it is 90 percent likely that the resulting true rise is GDP will br found.
The solution file is attached.
(a) The 90% CI for the mean GDP is given by [ - 1.645 * SE, + 1.645 * SE]
= [4 - 1.645 * 0.4, 4 + 1.645 * 0.4]
= [3.342, 4.658]
The 95% CI for ...
The following posting helps with problems involving econometrics. Step by step calculations are provided for each problem.