You Have Collected Data for Real GDP (Y)and Have Estimated $\hat { Y }$

question 49

Essay

You have collected data for real GDP (Y)and have estimated the following function:
ln $\hat { Y }$ _t = 7.866 + 0.00679×Zeit
(0.007)(0.00008)
t = 1961:I - 2007:IV, R² = 0.98, SER = 0.036
where Zeit is a deterministic time trend, which takes on the value of 1 during the first quarter of 1961, and is increased by one for each following quarter.
a. Interpret the slope coefficient. Does it make sense?
b. Interpret the regression R². Are you impressed by its value?
c. Do you think that given the regression R², you should use the equation to forecast real GDP beyond the sample period?

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Definitions:

Return On Investment

A performance measure used to evaluate the efficiency or profitability of an investment relative to its cost.

Minimum Required Rate

The lowest rate of return or discount rate that investors are willing to accept before investing in a project or financial asset.

Investment Opportunity

Any vehicle or asset that individuals or businesses can put money into in hopes of generating a financial return.

Return On Investment

A financial ratio used to evaluate the effectiveness of an investment, comparing the gain from the investment to its cost.