Question

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3. Following data on adjusted income and reasonable itemized deduction amount of 1040 Form is published by IRS. (20 points)

Adjusted Gross Income ($1000) in 1040	Reasonable itemized reduction amount ($1000)
22	9.6
27	9.6
32	10.1
48	11.1
65	13.5
85	17.7
120	25.5

1. Which variable is the predictor (X) and which is the response (Y)?
2. Find the least-square regression line y=a+bx
3. Plot the data and your least-square line in one graph. Do you think that the regression line does a job to describe the relationship?
4. What is the estimated reasonable itemized reduction amount for all the taxpayers who earn $52,500 a year? If John makes $52,500 and claim $20,400 itemized reduction, will IRS audit his tax return?
5. Compute the standard error of estimate S_y,x for the least-square regression.

Answer 1

SOLUTION:

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