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Multiple Regression

Do you suppose that when applying the multiple regression in the formula Y = b1X1 and b2X2 + E that X1 represents wages and X2 represents transportation costs?
Discuss how X1 and X2 b slopes could create several different economic scenarios during different economic times of the year, or even during several different years, and why that might happen.
For example, during a recession, which would you suggest would have the greater overall effect on the economy?
Also, during good times, what would you suppose would be your answer? Explain whether it may change.

Solution Preview

I would assume that the coefficient (slope) on X1, wages, would be positive. This is natural to assert because a rise in wages would have a positive effect on the economy. I would also assume that the coefficient on X2, transportation costs, is negative. This is reasonable because higher transportation costs would serve to slow economic activity.

What will really determine the overall effect on the economy is the magnitude of the coefficients. Wages (X1) will probably have ...

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