TABLE 13-3
An economist is interested to see how consumption for an economy (in $billions) is influenced by gross domestic product ($billions) and aggregate price (consumer price index). The Microsoft Excel output of this regression is partially reproduced below.

-Referring to Table 13-3, one economy in the sample had an aggregate consumption level of $4 billion, a GDP of $6 billion, and an aggregate price level of 200. What is the residual for this data point?
A) $4.39 billion
B) $0.39 billion
C) -$0.39 billion
D) -$1.33 billion

Question

TABLE 13-3
An economist is interested to see how consumption for an economy (in $billions) is influenced by gross domestic product ($billions) and aggregate price (consumer price index). The Microsoft Excel output of this regression is partially reproduced below.
 
-Referring to Table 13-3, one economy in the sample had an aggregate consumption level of $4 billion, a GDP of $6 billion, and an aggregate price level of 200. What is the residual for this data point?
A) $4.39 billion 
B) $0.39 billion 
C) -$0.39 billion 
D) -$1.33 billion

Quizplus · Accepted Answer

To find the residual, we need to determine the difference between the actual consumption level and the predicted consumption level based on the regression equation.

The regression equation shown in the output is: 
Consumption = -1.691 + 0.755*GDP - 0.012*Price

Plugging in the values for the economy in question: 
Consumption = -1.691 + 0.755*6 - 0.012*200 
Consumption = 2.19

The predicted consumption level for this economy is $2.19 billion.

To find the residual, we simply subtract the predicted consumption from the actual consumption:

Residual = Actual consumption - Predicted consumption 
Residual = 4 - 2.19 
Residual = 1.81

The residual for this data point is $1.81 billion, which is closest to option C (-$0.39 billion).

TABLE 13-3 an Economist Is Interested to See How Consumption for an for an Economy