Question

How do you interpret the price indices in Exhibit 3? How do economists construct them? Use Excel regression to analyze the relationship between the adjusted price index (dependent variable and year (independent variable). Interpret your regression findings by discussing the coefficient of determination (R-squared), the regression coefficient, the regression equation, and the p value.   Can you use the regression equation to predict the price indices? Take into account statistical, macroeconomic, and other considerations.

EXHIBIT 3

Number	Year	Gross Income	Price Index	Adjusted Price Index	Real Income
1	1991	50,599	136.2	1.362	37150.51
2	1992	53,109	140.3	1.403	37853.88
3	1993	53,301	144.5	1.445	36886.51
4	1994	56,885	148.2	1.482	38383.94
5	1995	56,745	152.4	1.524	37234.25
6	1996	60,493	156.9	1.569	38555.13
7	1997	61,978	160.5	1.605	38615.58
8	1998	61,631	163	1.630	37810.43
9	1999	63,297	166.6	1.666	37993.40
10	2000	66,531	172.2	1.722	38635.89
11	2001	67,600	177.1	1.771	38170.53
12	2002	66,889	179.9	1.799	37181.21
13	2003	70,024	184	1.840	38056.52
14	2004	70,056	188.9	1.889	37086.29
15	2005	71,857	195.3	1.953	36793.14

Answer 1