Mary Palmquist, a Wall Street securities analyst, wants to determine the relationship between the nation' gross domestic product (GDP) and the...
Mary Palmquist, a Wall Street securities analyst, wants to determine the relationship between the nation’ gross domestic product (GDP) and the profits (after taxes) of the General Electric (GE) Company. She obtains the following data concerning each variable:
| Year | Gross Domestic Products (billions of dollars) | General Electric’s Profits (millions of dollars) |
| 1965 | 688 | 355 |
| 1966 | 753 | 339 |
| 1967 | 796 | 361 |
| 1968 | 868 | 357 |
| 1969 | 936 | 278 |
| 1970 | 982 | 363 |
| 1971 | 1,063 | 510 |
| 1972 | 1,171 | 573 |
| 1973 | 1,306 | 661 |
| 1974 | 1,407 | 705 |
| 1975 | 1,529 | 688 |
| 1976 | 1,706 | 931 |
ANSWER
Multiple R squared : 0.897
Standard error of estimate :67.81
| Variable | Coefficient | Std error | Std coef | Tolerance | T | P(2TAIL) |
| Constant | - 134.54 | 71.67 | 0.00 | -1.88 | 0.09 | |
| General Electric Profits | 0.589 | 0.063 | 0.95 | 9.35 | 0.00 |
What are the least square estimates of the intercept and slope of the true regression line, where GE ’profits is the dependent variable and GDP is the independent variable?
On the average, what effect does $1 increase in GDP seem to have on the profit of GE?
If Ms Pakmquist feels that next year GDP is $2 trillion that forecast of GE’s profits will she make on the basis of the regression?
What is the coefficient of determination between the nation’s GDP and GE’ profits?
Do the results obtained in the previous parts of this problem prove that changes in GE’ profits are caused changes in GDP? Can we be sure that GE’s profit is linear function of the GDP? What other kinds of functions might be as good or better?
If you were the financial analyst, would you feel that this regression line was an adequate model to forecast GE’s profits? Why and why not?
