Question

In: Statistics and Probability

3. In a study of the long-run and short-run demands for money, Chow estimated the following...

3. In a study of the long-run and short-run demands for money, Chow estimated the following demand equation (standard errors in parentheses) for the United States from 1947:1 through 1965:4:

Mt=0.14+1.05Yt*-0.01Yt-0.75Rt

(0.15) (0.10) (0.05)

R²= 0.996

DW = 0.88^**

Breusch-Godfrey LM Test= 8.38^**

N = 76 (quarterly)

where:

Mt = the log of the money stock in quarter t

Yt^* = the log of permanent income (a moving average of previous quarters’ current income) in quarter t

Yt = the log of current income in quarter t

Rt = the log of the rate of interest in quarter t

a. Test for the significance of the coefficients and for the overall significance of the model.

b. What econometric problems seem likely to be in this equation?

c. In particular, are there are any problems related to the coefficient of Y? If so, are these problems more likely to have been caused by multicollinearity, serial correlation, or heteroskedasticity?

d. What suggestions would you have for another estimation of this equation? Why?

3. In a study of the long-run and short-run demands for money, Chow estimated the following demand equation (standard errors in parentheses) for the United States from 1947:1 through 1965:4:

Mt=0.14+1.05Yt*-0.01Yt-0.75Rt

(0.15) (0.10) (0.05)

R²= 0.996

DW = 0.88^**

Breusch-Godfrey LM Test= 8.38^**

N = 76 (quarterly)

where:

Mt = the log of the money stock in quarter t

Yt^* = the log of permanent income (a moving average of previous quarters’ current income) in quarter t

Yt = the log of current income in quarter t

Rt = the log of the rate of interest in quarter t

a. Test for the significance of the coefficients and for the overall significance of the model.

b. What econometric problems seem likely to be in this equation?

c. In particular, are there are any problems related to the coefficient of Y? If so, are these problems more likely to have been caused by multicollinearity, serial correlation, or heteroskedasticity?

d. What suggestions would you have for another estimation of this equation? Why?

Expert Solution

orchestra answered 2 years ago

What will happen in the long run if companies are losing money in the short run?...

What will happen in the long run if companies are losing money in the short run? a. Companies will leave the marketplace, the market supply will shift to the left, and the price will rise until there is zero economic profit for the remaining companies. b. Companies will stay in the marketplace, the market supply and demand will be unaffected, and quantity supplied will drop. c. Companies will leave the marketplace, the market demand will decrease, and the price will...

What is neutrality of money? Does it present in short run, medium run or long run?...

What is neutrality of money? Does it present in short run, medium run or long run? Please explain.

Analyze the short run and long run effects of an unanticipated decrease in the money supply...

Analyze the short run and long run effects of an unanticipated decrease in the money supply in the misperceptions model. Tell me what happens to output, the actual price level and expected price level in both the short run and long run.

What is the impact of money growth on economy (short run, adjustment period and long run)?

What is the difference in the short run and the long run? In the short run,...

What is the difference in the short run and the long run? In the short run, A. at least one of the firm's inputs is fixed, while in the long run, at least one of the firm's inputs is variable. B. at least one of the firm's inputs is fixed, while in the long run, the firm is either able to vary all its inputs, adopt new technology, or change the size of its physical plant. C. at least one...

3. Short-run costs are generally lower than long-run costs.

True/False Questions. 3. Short-run costs are generally lower than long-run costs. 4. If a firm has zero fixed costs, then the firm’s total cost is equal to its variable costs. 5. Since the marginal cost curve “pulls” the average variable cost curve, the marginal cost curve will lie above the average variable cost curve only when average variable costs are decreasing.

25. Draw a graph showing the short- and long-run effects of an increase in the money...

25. Draw a graph showing the short- and long-run effects of an increase in the money supply.

For each of the following events, discuss the short run and the long run effects on...

For each of the following events, discuss the short run and the long run effects on output and price levels, assuming that the policymakers take no action A) The stock market decreases sharply, reduce customer's wealth B) The federal goverment increases spending on national defense C) A technogical improvement raises productivity

1. Is this cost function a short-run or long-run cost function? ? = 1 3 ?...

1. Is this cost function a short-run or long-run cost function? ? = 1 3 ? 3 − ? 2 + 2? + 90 a. Short-run b. Long-run c. There is information to answer question _____ 2. The ______illustrates the various combinations of L and K that can produce the same level of output. a. Isoquant b. Isocost c. Expansion path _____ 3. For a cost-minimizing firm that chooses the optimal level of L and K, it will always choose...

In words explain Classical Dichotomy, Money Neutrality, and the Classical theory (short and long run).