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    Model Transformation

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    What method has been used to transform Model 1 to Model 2? Equations for Model 1 and Model 2 are as follows:

    Model 1

    Ct = 26.19 + 0.6428GNPt - 0.4398Dt + et

    Model 2

    Ct /GNPt = 25.92(1/GNPt)- 0.4598(Dt/GNPt)+ et

    C represents Consumption expenditures
    GNP represents Gross National Product
    D represents defense spending

    Sample is quarterly from 1960 to 1969 (time series). Test for first order serial correlation.

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    Solution Preview

    Model 2 is actually Model 1 divided by GNPt:
    (1)Ct = 26.19 + 0.6428GNPt - 0.4398Dt + et
    (2)(Ct/GNPt) = 25.92(1/GNPt)- 0.4598(Dt/GNPt)+ et ...

    Solution Summary

    The solution addresses what method has been used to transform Model 1 to Model 2? Equations for Model 1 and Model 2 are as follows:

    Model 1

    Ct = 26.19 + 0.6428GNPt - 0.4398Dt + et

    Model 2

    Ct /GNPt = 25.92(1/GNPt)- 0.4598(Dt/GNPt)+ et

    C represents Consumption expenditures
    GNP represents Gross National Product
    D represents defense spending

    Sample is quarterly from 1960 to 1969 (time series). Test for first order serial correlation.

    $2.49

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