Refer to exercise 7.21.
a. What are the real income and interest rate elasticities of real cash balances?
b. Are the preceding elasticities statistically significant individually?
c. Test the overall significance of the estimated regression.
d. Is the income elasticity of demand for real cash balances significantly different from unity?
e. Should the interest rate variable be retained in the model? Why?
Exercise 7.21
Table 7.11 gives data for the manufacturing sector of the Greek economy for the period 1961-1987.
a. See if the Cobb-Douglas production function fits the data given in the table and interpret the results. What general conclusion do you draw?
b. Now consider the following model:
Where the regressand represents labor productivity and the regressor represents the capital labor ratio. What is the economic significance of such a relationship, if any? Estimate the parameters of this model and interpret your results.
