Table 3.8 gives data on
1. Plot the GDP data in current and constant (i.e., 1992) dollars against time.
2. Letting Y denote GDP and X time (measured chronologically starting with 1 for 1959, 2 for 1960, through 39 for 1997), see if the following model fits the GDP data:
Yt = β1 + β2 Xt + ut
Estimate this model for both current and constant-dollar GDP.
3. How would you interpret β2?
4. If there is a difference between β2 estimated for current-dollar GDP and that estimated for constant-dollar GDP, what explains the difference?
5. From your results what can you say about the nature of inflation in the United States over the sample period?
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