If there is a difference between beta2 estimated for

Question

Table 3.8 gives data on gross domestic product (GDP) for the United States for the years 1959-1997.
a. Plot the GDP data in current and constant (i.e., 1992) dollars against time.
b. Letting Y denote GDP and X time (measured chronologically starting with 1 for 1959, 2 for 1960, through 39 for 1997), see if the following model ?ts the GDP data:

Yt = β1 + β2 Xt + ut

Estimate this model for both current and constant-dollar GDP.

c. How would you interpret β2 ?

d. If there is a difference between β2 estimated for current-dollar GDP and that estimated for constant-dollar GDP, what explains the difference?

TABLE 3.8     NOMINAL AND REAL GDP, UNITED STATES, 1959-1997

Year	NGDP	RGDP	Year	NGDP	RGDP
1959	507.2000	2210.200	1979	2557.500	4630.600
1960	526.6000	2262.900	1980	2784.200	4615.000
1961	544.8000	2314.300	1981	3115.900	4720.700
1962	585.2000	2454.800	1982	3242.100	4620.300
1963	617.4000	2559.400	1983	3514.500	4803.700
1964	663.0000	2708.400	1984	3902.400	5140.100
1965	719.1000	2881.100	1985	4180.700	5323.500
1966	787.7000	3069.200	1986	4422.200	5487.700
1967	833.6000	3147.200	1987	4692.300	5649.500
1968	910.6000	3293.900	1988	5049.600	5865.200
1969	982.2000	3393.600	1989	5438.700	6062.000
1970	1035.600	3397.600	1990	5743.800	6136.300
1971	1125.400	3510.000	1991	5916.700	6079.400
1972	1237.300	3702.300	1992	6244.400	6244.400
1973	1382.600	3916.300	1993	6558.100	6389.600
1974	1496.900	3891.200	1994	6947.000	6610.700
1975	1630.600	3873.900	1995	7269.600	6761.700
1976	1819.000	4082.900	1996	7661.600	6994.800
1977	2026.900	4273.600	1997	8110.900	7269.800
1978	2291.400	4503.000

 

Note: NGDP = nominal GDP (current dollars in billions).

RGDP = real GDP (1992 billions of dollars).

Source: Economic Report of the President, 1999, Tables B-1 and B-2, pp. 326-328.

e. From your results what can you say about the nature of in?ation in the United States over the sample period?