MS 251: Statistical Analysis for Business Decisions
Spring 2000
Quiz 11
1. State the required conditions for the error term in a linear regression model.
2. Last week, you were given the following quiz problem:
An economist theorizes that there is a linear relationship between a country’s
inflation rate and the rate of increase in the money supply. In other words, the
economist believes that increases in the money supply cause increases in the inflation
rate. The economist collects data from four countries. The rate of increase in the
money supply and the associated inflation rates are expressed below as percentages.
Money supply 5 6 7 8
Inflation 6 5 7 9
From the data, you should have calculated the following:
SSxy=5.5
SSx=5
x
=6.5
y
=6.75
Fitted Regression Line:
ii
xy 1.14.0
ˆ
Using this information, and any other information you may need to calculate,
answer the following questions:
A) Is there evidence at the =.05 significance level of a linear relationship between
the money supply and interest rates? Perform a hypothesis test to determine if
1
ˆ
differs from 0.
B) Calculate the Coefficient of determination.
C) Explain what the coefficient of determination means in the context of this
problem.
