SCENARIO 13-13
an Econometrician Is Interested in Evaluating the Relationship $$Y = 10 + 5 X _ { 1 } + 8 X _ { 2 }$$

question 119

Multiple Choice

SCENARIO 13-13
An econometrician is interested in evaluating the relationship of demand for building materials to mortgage rates in Los Angeles and San Francisco.He believes that the appropriate model is $$Y = 10 + 5 X _ { 1 } + 8 X _ { 2 }$$
where
$$\begin{array} { l } X _ { 1 } = \text { mortgage rate in } \% \\X _ { 2 } = 1 \text { if SF, } 0 \text { if LA } \\Y = \text { demand in } \$ 100 \text { per capita }\end{array}$$
-Referring to SCENARIO 13-13, the fitted model for predicting demand in Los Angeles is_.

• A)10 + 5X1
• B)10 + 13X1
• C)15 + 8X2
• D)18 + 5X2

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Definitions:

Mean-Variance Efficient Portfolio

A portfolio construction theory that suggests the best investment portfolio is one that offers the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Single-Index Structure

A portfolio model that relates the returns on each asset to a single market index.

Sensitivity Coefficients

Measurements that indicate how much the output of a mathematical model or system can change in response to changes in its inputs.

Macroeconomic Factor

A variable or element that impacts the broader economy, including aspects like inflation, unemployment, monetary and fiscal policies.