# Econometrics Problem

Table 3-6 gives data on X (net profits after tax in U.S. manufacturing industries [$, in millions]) and Y (cash dividend paid quarterly in manufacturing industries [$, in millions]) for years 1974 to 1986.

a. What relationship, if any, do you expect between cash dividend and after-tax profits?

b. Plot the scattergram between Y and X.

c. Does the scattergram support your expectations in part (a)?

d. If so, do an OLS regression of Y on X and obtain the usual statistics.

e. Establish a 99% confidence interval for the true slope and test the hypothesis that the true slope coefficient is zero; that is, there is no relationship between dividend and the after-tax profit.

TABLE 3-6 CASH DIVIDEND (Y) AND AFTER-TAX PROFITS (X) IN U.S. MANUFACTURING INDUSTRIES, 1974-1986

Year Y X

$ in millions

1974 19,467 58,747

1975 19,968 49,135

1976 22,763 64,519

1977 26,585 70,366

1978 28,932 81,148

1979 32,491 98,698

1980 36,495 92,579

1981 40,317 101,302

1982 41,259 71,028

1983 41,624 85,834

1984 45,102 107,648

1985 45,517 87,648

1986 46,044 83,121

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