The following table shows the imports, the national income, and the relative price of imports (all measured in index form) of a certain country:

Year 1965 1966 1967 1968 1969 1970 1971 1972 1973

Y100 106107 120 110 116123 133 137

X100 104 106 111 111 115120124 126

Z100 99 110 126 113103102103 98

Y stands for imports, X is national income, and Z represents relative price of imports. We estimated the following model:

= 0+ 1+ 2+

The results were:

= 49.341 + 1.364 + 0.114

(24.061)

(0.143)

(0.143)

= 77.54154

The figures in parenthesis are standard errors. RSS stands for residual sum of squares.

(a)State your a priori expectations regarding the signs of the regression coefficients.

(b)Using a 5% level of significance, test whether each variable individually affects the level of imports and carefully interpret the results. Note: state the null and alternative hypotheses, the test statistic of interest, the critical value(s) and the decision.

(c)Compute ² and carefully interpret its value. Noted statistics are:

( )2= 1260.8889; = 116.8889;= 113; = 106.

[10 marks]

(d)Using a 5% level of significance, test whether all variables taken together significantly affect the value of imports.