Question 1: Suppose you were to develop an economic model of criminal activities, say, the hours spent in criminal activities (e.g., selling illegal drugs). What variables would you consider in developing such a model? See if your model matches the one developed by the Nobel laureate economist Gary Becker.
G. S. Becker, "Crime and Punishment: An Economic Approach," Journal of Political Economy,vol. 76, 1968, pp. 169-217.
Question 2: What do we mean by a linearregression model?
Question 3: The relationship between nominal exchange rate and relative prices.From the annual observations from 1980 to 1994, the following regression results were obtained, where Y=exchange rate of the German mark to the U.S. dollar (GM/$) and X=ratio of the U.S. consumer price index to the German consumer price index; that is, Xrepresents the relative prices in the two countries:
ˆYt =6.682-4.318Xt
r2=0.528
se=(1.22)(1.333)
a. Interpret this regression. How would you interpret r2?
b. Does the negative value of Xtmake economic sense? What is the underlying economic theory?