# Regression Analysis

See the attached file.

1) What can you now infer about the relationship between Corporate Taxes and Capital Formation (Investment)?

Is it a positive or negative relationship?

2) Based on the week 5 lecture, look at the original table ... it is a snapshot of the world economy from the year 1983.

Examine the results of the Regression Analysis as illustrated on the final scatterplot and notice the position of the US and Japan in relationship to the Regression Curve (straight line).

What can you infer about the US economy in 1983 in relation to the line (keep in mind the U.S. is slightly below the line).

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#### Solution Preview

1) What can you now infer about the relationship between Corporate Taxes and Capital Formation (Investment)? Is it a positive or negative relationship?

ANSWER:

The slope of the line (step 3/page 6) is B = 0.5461. In addition, you can see from the scatterplot (step 5/page 7) that the regression line goes up as you move from left to right.

Because the slope is positive, we know that there is a POSITIVE relationship between corporate taxes and capital formation. ...