Question 3a) Sara and Alfred estimated the following model:EDt = B₁ + B₂GDPt - B3EPt + ut(1)where ED₁ = Energy demand in year t, GDP =GDP in year t, and EP = Energy price in year t,the objective of the analysis is to study the effect of Energy demand. They transform (1) andestimateED/GDP = B₁ (1/GDPt) +B₂ - B3 (EP/GDP) + ut/GDPt(2)The empirical results based on the data for 1986–2015 were as follows:EDt = 40.15 +0.451 GDP + 0.6352 EPSe: (32.11) (0.5432) (0.3245)ED/GDP = 18.22 (1/GDP) +0.789 +0.3512 (EP/GDP)Se:(32.14)(1.2343) (0.6654)R² = 0.91i) What assumption is made by the authors in the second function and why do they derive thesecond function?R² = 0.992ii) Compare the results of the two regressions(at the 5% level). Has the transformation of theoriginal model improved the results, that is, reduced the estimated standard errors? Why orwhy not?iii) Can you compare the two R² values? Why or why not?b) Explain the 5 reasons for variability of disturbance (explain each reason with one example-don't use examples of slides).

Given information EDt=β1+β2GDPt-β3EPt+μt--- First regression…

Question 3 a) Sara and Alfred estimated the following model: EDt =B₁ + B₂GDPt - B3EPt + ut (1) where ED₁ = Energy demand in year t, GDP₁ =GDP in year t, and EP = Energy price in year t, the objective of the analysis is to study the effect of Energy demand. They transform (1) and estimate ED₁/GDP = B₁ (1/GDP₁) +B₂ - ß3 (EP/GDP) + ut/GDPt (2) The empirical results based on the data for 1986-2015 were as follows: ED₁ = 40.15 +0.451 GDP + 0.6352 EPt Se: (32.11) (0.5432) (0.3245) ED/GDP = 18.22 (1/GDP) + 0.789 +0.3512 (EPŁ/GDPŁ) R² = 0.91 Se: (32.14) (1.2343) (0.6654) i) What assumption is made by the authors in the second function and why do they derive the second function? R² = 0.992 ii) Compare the results of the two regressions(at the 5% level). Has the transformation of the original model improved the results, that is, reduced the estimated standard errors? Why or why not? iii) Can you compare the two R2 values? Why or why not?

Question 3 a) Sara and Alfred estimated the following model: EDt =B₁ + B₂GDPt - B3EPt + ut (1) where ED₁ = Energy demand in year t, GDP₁ =GDP in year t, and EP = Energy price in year t, the objective of the analysis is to study the effect of Energy demand. They transform (1) and estimate ED₁/GDP = B₁ (1/GDP₁) +B₂ - ß3 (EP/GDP) + ut/GDPt (2) The empirical results based on the data for 1986-2015 were as follows: ED₁ = 40.15 +0.451 GDP + 0.6352 EPt Se: (32.11) (0.5432) (0.3245) ED/GDP = 18.22 (1/GDP) + 0.789 +0.3512 (EPŁ/GDPŁ) R² = 0.91 Se: (32.14) (1.2343) (0.6654) i) What assumption is made by the authors in the second function and why do they derive the second function? R² = 0.992 ii) Compare the results of the two regressions(at the 5% level). Has the transformation of the original model improved the results, that is, reduced the estimated standard errors? Why or why not? iii) Can you compare the two R2 values? Why or why not?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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