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    Regression

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    To study the relationship between capacity utilization in manufacturing and inflation in the united states, Thomas Gittings obtained the following regression results based on the annual data from 1971-1988:

    ^
    Y(sub(t))= -70.85 + .8880X(sub (t))

    t= (-5.89) (5.90) r^2= 0.685

    where Y= changes in inflation as measured by the wholesale price index and X= capacity utilization rate.

    a. a priori, would you expect a positive relationship between Y and X? WHY? specific
    b.how would you interpret the slope coefficient? specifics!
    c. is the estimated slope coefficient statistically significant?
    d. is it statistically different from unity?
    e.the natural rate of capacity utilization is defined as the rate at which Y is zero. what is the rate for the period under study?

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    Solution Preview

    a. a priori, would you expect a positive relationship between Y and X? WHY? specific
    Capacity utilization rate is the percentage of an industry's or country's production capacity which is actually used, over some period of time. If capacity utilization rate (X) rises while capital input unchanged, more output will be produced, but less input needed. With more goods in the ...

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