Info

1,385.10

1978=31

Source: Energy Information Administration, 1978 Report to Congress.

Source: Energy Information Administration, 1978 Report to Congress.

7.18. U.S. defense budget outlays, 1962-1981. In order to explain the U.S. defense budget, you are asked to consider the following model:

Yt = ¡1 + ¡2 X2t + ¡3 X3t + ¡4 X4t + ¡5 X5t + ut where Yt = defense budget-outlay for year t, $ billions X2t = GNP for year t, $ billions

X3t = U.S. military sales/assistance in year t, $ billions X4t = aerospace industry sales, $ billions

X5t = military conflicts involving more than 100,000 troops. This variable takes a value of 1 when 100,000 or more troops are

238 PART ONE: SINGLE-EQUATION REGRESSION MODELS

involved but is equal to zero when that number is under 100,000.

To test this model, you are given the data in Table 7.8.

a. Estimate the parameters of this model and their standard errors and obtain R2, modified R2, and R2.

b. Comment on the results, taking into account any prior expectations you have about the relationship between Y and the various X variables.

c. What other variable(s) might you want to include in the model and why?

7.19. The demand for chicken in the United States, 1960-1982. To study the per capita consumption of chicken in the United States, you are given the data in Table 7.9, where Y = per capita consumption of chickens, lb X2 = real disposable income per capita, $ X3 = real retail price of chicken per lb, 0 X4 = real retail price of pork per lb, 0 X5 = real retail price of beef per lb, 0

X6 = composite real price of chicken substitutes per lb, 0, which is a weighted average of the real retail prices per lb of pork and beef, the weights being the relative consumptions of beef and pork in total beef and pork consumption

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