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?

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