Cost index. Recall the Worldwide Cost of Living Survey from Chapter 6 that determined the cost of living in the most expensive cities in the world as an index. This index scales New York City as 100 and expresses the cost of living in other cities as a percentage of the New York cost. For example, in 2007 the cost of living index in Tokyo was 122.1, which means that it was 22% higher than New York.

The output shows the regression of the 2007 on the 2006 index for the most expensive cities in 2007, where Index 2007 is the response variable.

a) State the hypotheses about the slope (both numerically and in words).

b) Perform the hypothesis test and state your conclusion in context.

c) Explain what the R-squared in this regression means.

d) Do these results indicate that, in general, cities with a higher index in 2006 had a higher index in 2007? Explain.

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Predictor Coeff SE(Coeff) t-ratio P-value Intercept 12.02 12.25 0.98 0.3446 Index 2006 0.943 0.115 8.17 <0.0001 s 4.45 R-Sq = 83.7%