Data on electric power consumption in a Midwestern town (in billions of kilowatt hours), income (in millions of dollars), and electricity prices (in cents per kilowatt hour) for the period 1987-2001 are shown below:

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Data on electric power consumption in a Midwestern town (in billions of kilowatt hours), income (in millions of dollars), and electricity prices (in cents per kilowatt hour) for the period 1987-2001 are shown below:

 Year Consumption Income Price 1987 407.9 944.0 2.09 1988 447.8 992.7 2.10 1989 479.1 1,077.6 2.19 1990 511.4 1,185.9 2.29 1991 554.2 1,326.4 2.38 1992 555.0 1,434.2 2.83 1993 586.1 1,594.2 3.21 1994 613.1 1,718.0 3.45 1995 652.3 1,918.3 3.78 1996 679.2 2,163.9 4.03 1997 696.0 2,417.8 4.43 1998 734.4 2,613.7 5.12 1999 730.5 2,957.8 5.80 2000 732.7 3,069.3 6.44 2001 750.9 3,304.8 6.83

a)      Using regression analysis, estimate consumption as a linear function of income, price, and the previous year's consumption (assume consumption in 1986 was 367.7 Billion kilowatt hours).   Write the equation, the t-stats, the R2, the Standard Error of the Estimate, and the F-statistic. Provide interpretation of the estimation (i.e., are the signs what you'd expect; what level of significance do the coefficients have, etc…). Provide a copy of your output from your regression analysis.

b). Assume that income in 2002 is \$3,661.3 million and the price of electricity is 7.16 cent per kilowatt hour. Predict the consumption of electricity. How confident are you that the prediction is accurate?

• 5 years ago