PS4_Solutions - AEM 4150 PRICE ANALYSIS Fall 2008 Problem...

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AEM 4150 PRICE ANALYSIS Fall 2008 Problem Set #4 Suggested Solutions 1. (a) To permit direct comparison between dollar figures from different points in time. By deflating, one seeks to obtain the best-possible measure of real prices; decision-makers usually respond changes in relative prices. Dividing a price variable by a price index gives a measure of the movement of that price variable relative to the price index. (b) Fixed weights reflect consumer spending patterns in an earlier period. Although updated periodically, CPI inevitably is based on historical experience. Consumers respond to price change by substituting or adjusting behavior. (c) Base year = 1997 since the index in 1997 equals 100. 2. (a) Time series. (b) Regression output using Excel: SUMMARY OUTPUT Regression Statistics Multiple R 0.9915 R Square 0.9831 Adjusted R Square 0.9789 Standard Error 1.4224 Observations 36.0000 ANOVA df SS MS F Significance F Regression 7.0000 3302.9821 471.85 233.23 0.0000 Residual 28.0000 56.6474
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PS4_Solutions - AEM 4150 PRICE ANALYSIS Fall 2008 Problem...

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