6. Assume that you in charge of the Central Bank (BOT). You are given the following information on macro- economic variable, quantity of money
(M) and Gross Domestic Product (GDP) in million (TShs)
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 M 9 10 8 7 10 4 5 5 6 7 GDP6 8 8 7 7 12 9 8 9 10
i. What kind of a data set is being used in this analysis?
ii. Plot these data on a scatter diagram. What does the scatter diagram reveal?
iii. Estimate the regression of national income on the quantity of money and interpret the slope and intercept of the regression line.
i. This is a time series data set.
ii. The scatter diagram reveals that there is a positive correlation between the quantity of money and Gross Domestic Product.
iii. The estimated regression of national income on the quantity of money is: GDP = 0.7M + 6.2. The slope of the regression line (0.7) indicates that a one unit increase in the quantity of money leads to a 0.7 unit increase in Gross Domestic Product. The intercept (6.2) indicates that when the quantity of money is zero, the Gross Domestic Product is 6.2 million.