Lab Objective

To gain more experience with histograms, box plots, correlations, and line fitting.

Lab Procedures

Continue to work with USeconstat.JMP.
More descriptions see Interest Rate I.

Questions:

7) Of the following two variables, which one has the weaker linear association with long-term interest rates: (i) wage rate in business sector; or (ii) net lending, government? Explain your choice in one sentence.

8) What is the correlation between government net borrowing and long-term interest rates? Note that borrowing is the opposite of lending, so that net borrowing equals negative one times net lending.

9) Suppose you had a model that gave reasonable predictions about long-term interest rates in the next year. (This is fantasy: interest rates are notoriously hard to predict. You'd be a billionaire many times over if you come up with a good prediction model. Believe me, there are many statisticians and economists trying to do so!) Suppose you predict that interest rates next year will be 6.0%. Predict gross domestic product (market prices) for next year using a regression line to make your prediction.

To fit a regression line, go to Analyze - Fit Y by X. Select "Gross Domestic Product (Market Prices), Value" as the Y variable and "Interest rate, Long-term" as the X variable. Once you see the scatter plot, go to the red arrow next to Bivariate Fit. Select Fit Line. The intercept and slope of the regression line are the values in the first column of the table labelled Parameter Estimates. We'll talk about the values in the other columns, as well as the values in the other tables, later in the course.

10) Does the scatter plot suggest any clearly non-linear relationships in the data? Justify your answer in at most two sentences.

11) If interest rates were 1%, could you use the regression equation to predict the corresponding gross domestic product (market prices)? If you think so, write down the predicted value of GDP. If you think not, explain why not in at most one sentence.
ONLY WRITE ONE ANSWER: WRITING BOTH ANSWERS GETS NO CREDIT.