1. 7 points) The following data give the yearly inflation rate and money supply growth rate (both measured in percentage) for 51 countries. A simple regression of Infla- tion on Growth yields the following information from RegressIt output:

(a) (2 points) What is the linear relationship implied by these data? (b) (2 points) For a country with an 6% money supply growth, what would be the expected inflation? (This means Growth= 6 as it is measured in percentage.) (c) (3 points) A simplistic monetarist claims that a 1% increase in the money supply growth rate would result in a corresponding 1% increase in inflation. In other words, for the relationship of Inflation = 0 + 1Growth, the null hypothesis is 1 = 1. Do the regression results support this null hypothesis?

2.. 7 points) A local real estate agent argues that house prices in Pittsburgh are related to the number of rooms in a house. You collect a random sample of 190 houses and run a simple regression using House Price (measured in dollars) as the dependent variable and Rooms (measured as the number of rooms in a house) as the independent variable. Given below is the Excel output of the regression results.

a)(2 points) Construct the 99.7% confidence interval for the slope of the regression line. (b) (2 points) Consider a house with 5 room. What is the probability that the house will sell for more than $270,245? (c) (3 points) A savvy real estate investor, Noah, owns a house in Pittsburgh that he is planning to sell. Based on the regression put, Noah decides to destroy some walls to reduce the number of rooms in the house, hoping to increase the house selling price. Based on the regression output, do you think this is a good decision? Justify your comment.