Question #135

- If Mercado determines that Model TWO is the appropriate specification, then he is essentially saying that for each year, value of sales from quarter three to four is expected to: A) grow by more than $1,000,000. B) remain approximately the same. C) grow, but by less than $1,000,000. In preparing an analysis of Treefell Company, Jack Lumber is asked to look at the company's sales in relation to broad-based economic indicators. Lumber's analysis indicates that Treefell's monthly sales are related to changes in housing starts (H) and changes in the mortgage interest rate (M). The analysis covers the past 10 years for these variables. The regression equation is: S = 1.76 + 0.23H – 0.08M Number of observations: 123 Unadjusted R2: 0.77 F-statistic: 9.80 Durbin-Watson statistic: 0.50 p-value of Housing Starts: 0.017 t-stat of Mortgage Rates: –2.6 Variable Descriptions S = Treefell Sales (in thousands) H = housing starts (in thousands) M = mortgage interest rate (in percent) November 20X6 Actual Data Treefell's monthly sales: $55,000 Housing starts: 150,000 Mortgage interest rate (%): 7.5 Partial Chi-Square Table (5% Level of Significance) Degrees of Freedom Critical Value 1 3.84 2 5.99 3 7.81 4 9.49 5 11.07 6 12.59