ECO220Y1 Chapter Notes - Chapter 0: Economic Forecasting, Scatter Plot, Central Tendency

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Don"t need to know about rank correlation. The paper describes each of the steps necessary to replicate tables 1 and 2. They run regressions on regression results: there are two levels of regressions. For example, here is the regression to obtain canada"s growth rate from 1950 to 1960. This is done not just for canada, but each country. The ols slope coefficients become the raw data for the second level of regression. The second level of regressions, which are reported in tables 1 and 2, looks at how well growth rates from a previous time period predict subsequent growth across countries. For example, consider the first row of results in table 1. That looks at how well growth rates during the period from 1950 1960 predict growth rates during 1960 1970. Below is the scatter plot and the ols regression for that forecast. Asiaphoria a relatively uncritical enthusiasm for the growth prospects of asian economies.

Related Questions

A food-products company has recently introduced a new line of fruit pies in six U.S. cities: Atlanta, Baltimore, Chicago, Denver, St. Louis, and Fort Lauderdale. Based on the pie%u2019s apparent success, the company is considering a nationwide launch. Before doing so, it has decided to use data collected during a two-year market test to guide it in setting prices and forecasting future demand.

For each of the six markets, the firm has collected eight quarters of data for a total of 48 observations. Each observation consists of data on quantity demanded (number of pies purchased per week), price per pie, competitors%u2019 average price per pie, income, and population. The company has also included a time-trend variable for each observation. A value of 1 denotes the first quarter observation, 2 the second quarter, and so on, up to 8 for the eighth and last quarter.

A company forecaster has run a regression on the data, obtaining

the results displayed in the table.

Coefficient Standard Error of Coefficent Mean of ValueVariable

Intercept -4,516.3 4,988.2 ------

Price (dollars) -3,690.6 702.8 7.50

Competitor's

price (dollars) 4226.5 851.0 6.50

Income ($000) 777.1 66.4 40

Population(000) .40 .31 2,300

Time (1 to 8) 356.1 92.3 -----

N = 48. R2=.93. Standard error of regression = 1,442

a. Which of the explanatory variables in the regression are statistically significant? Explain. How much of the total variation in pie sales does the regression model explain? -

b. Compute the price elasticity of demand for pies at the firm%u2019s mean price: ($7.50) and mean weekly sales quantity (20,000 pies). Next, compute the cross-price elasticity of demand. Comment on these estimates.

c. Other things equal, how much do we expect sales to grow (or fall over the next year?

d. How accurate is the regression equation in predicting sales next quarter? Two years from now? Why might these answers differ?

e. How confident are you about applying these test-market results to decisions concerning national pricing strategies for pies?

1. Fiscal policy attempts to affect the level of overall spendingin the economy by changes in:
A) the interest rate.
B) the money supply.
C) banking regulations.
D) taxes and spending.

2. Economists have identified several consecutive months of fallingemployment and forecasts for the next few months are for more ofthe same. At what point in the business cycle is the economyapparently located?
A) recession
B) expansion
C) business cycle peak
D) business cycle trough

3. The onset of the Great Depression:
A) was not a shock to anyone since most economists predicted theâroaring 20sâ were bound to end in disaster.
B) created a disagreement between the Hoover administration andconventional economists because Hoover wanted the government tointervene much more quickly than most others.
C) came as a considerable shock to the conventional wisdom ofeconomics at that time and opened the door for critiques ofmainstream thought by economists like JM Keynes.
D) was in 1918 at the end of World War I.

4. When economists measure economic growth, they often use:
A) the inflation rate.
B) the unemployment rate.
C) nominal GDP.
D) real GDP.

5. In a typical business cycle, the business cycle peak isimmediately followed by the:
A) recession.
B) business cycle trough.
C) expansion.
D) depression.

6. Suppose an economy experiences rising total output accompaniedby increasing employment, this is generally known as:
A) stagflation.
B) recession.
C) inflation.
D) expansion.

7. Controlling interest rates is an example of:
A) fiscal policy.
B) tax policy.
C) monetary policy.
D) exchange rate policy.

8. The alternation between recessions and expansions is known asthe:
A) unemployment rate.
B) long-run economic growth.
C) business cycle.
D) macroeconomy.

9. A recession in America is typically associated with:
A) a falling unemployment rate.
B) a decrease in the number of people living in poverty.
C) a decrease in the percentage of Americans with healthinsurance.
D) an increase in corporate profits.

10. The purpose of macroeconomic policy is to:
A) bring unemployment closer to the natural rate.
B) reduce the severity of recessions.
C) rein in excessively strong expansions.
D) bring unemployment closer to the natural rate and to reduce theseverity of recessions.

11. The trade balance is the difference between the value ofthe:
A) trade deficit and the budget deficit.
B) goods and services that one country sells to other countries andthe value of the goods and services it buys in return.
C) exchange rates of two countries that are engaged ininternational trade.
D) national debt and the foreign debt.

12. Increasing the total amount of available productive resourcesis the focus of __________.
A) macroeconomics
B) fiscal policy
C) monetary policy
D) microeconomics

13. The point on a business cycle when real GDP stops rising andbegins falling is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.

14. During a recession, one will often observe:
A) aggregate output rising.
B) unemployment rates will be increasing while aggregate output isfalling.
C) employment rates will be rising.
D) zero unemployment rates.

15. Monetary policy involves:
A) changes in government spending.
B) changes in government tax receipts.
C) changes in the quantity of money.
D) changes in tax rates.

16. The trough of the business cycle:
A) comes right after the expansion phase.
B) comes before the recession phase.
C) is a temporary maximum level of real GDP.
D) is a temporary minimum level of real GDP.

17. Which one of the following statements about the U.S. economy isnot accurate?
A) Since the Second World War, aggregate output grew at a ratelower than the average annual growth rate of population.
B) Since the Second World War, aggregate output grew at a ratehigher than the average annual growth rate of population.
C) Since the Second World War, macroeconomic policy has helped makethe economy more stable.
D) Long-run growth per capita is the key to higher wages and arising standard of living.

18. An economic recovery is all of the following except:
A) economic growth of a sustained nature.
B) a short-run increase in aggregate production in aneconomy.
C) a time of increasing employment.
D) the end of the business cycle.

19. Which of the following would NOT be classified as amacroeconomic question?
A) How many people are employed in the economy as a whole?
B) What determines the overall level of prices in the economy as awhole?
C) What determines the overall trade in goods, services, andfinancial assets between the United States and the rest of theworld?
D) What determines the cost to a university or college of offeringa new course?

20. Which of the following statements regarding price level orinflation is correct?
A) Supply and demand can not explain why a particular good orservice becomes more expensive relative to other goods andservices.
B) Inflation affects only the more advanced countries whereas lessadvanced countries face deflation.
C) Prices of most goods and services remained stable during thegreat depression.
D) In general, when the economy is in recession and jobs are hardto find, inflation tends to fall.

21. If wages grew at a 5% rate last year and average prices grew ata 3% rate, then the average worker is:
A) better off.
B) worse off.
C) no better or worse off.
D) unaffected.

22. In an open economy:
A) the exchange rate is determined by the government.
B) specialization in activities with a comparative advantage is notpossible.
C) trade is only beneficial to the relatively larger economy.
D) there is trade in goods, services, or assets with othercountries.

23. Changes in government spending and taxes in an effort to changeoverall spending in an economy is:
A) fiscal policy.
B) monetary policy.
C) investment.
D) the stock market.

24. If an economy is open, this means that:
A) anyone can immigrate to the country.
B) trading with other countries makes up a portion of itseconomy.
C) it does not trade with other countries.
D) it will experience a drop in its real GDP.

25. Inflation is a situation where:
A) the average price level falls.
B) the average price level increases.
C) the average price level becomes negative.
D) the real price level falls.

26. The topics studied in macroeconomics include:
A) the price of a motorcycle.
B) the wages of engineers.
C) the average price level in the economy.
D) how much ice cream consumers buy.

27. A period of rising real GDP is a(n):
A) peak.
B) trough.
C) expansion.
D) recession.

28. The modern tools of macroeconomic policy are:
A) tax policy and antitrust policy.
B) fiscal policy and monetary policy.
C) monetary policy and exchange rate policy.
D) capital policy and labor policy.

29. A ârubber neckingâ traffic jam is an example of:
A) microeconomics in action.
B) individual behavior that has a large aggregate impact.
C) the paradox of thrift.
D) an outcome smaller than the sum of its parts.

30. The most painful consequence of a recession is:
A) rising unemployment.
B) increasing inflation.
C) increasing aggregate output.
D) higher interest rates.

31. Per capita economic growth is:
A) economic growth per unit of capital.
B) economic growth per person.
C) economic expansion over the business cycle.
D) sustained increase in aggregate output.

32. Keynesian economics stressed:
A) total spending.
B) the self-regulating power of free markets.
C) the long run.
D) that the Depression should run its course to bring down the highcost of living.

33. When an economy's overall production grows faster than itspopulation, this is referred to as:
A) long-run growth per capita.
B) an increase in nominal GDP.
C) deflation.
D) the paradox of thrift.

34. Fiscal policy attempts to affect the overall level of spendingin the economy through:
A) changes in the inflation rate.
B) changes in the quantity of money or the interest rate.
C) changes in tax policy or government spending.
D) discretionary regulation of profits and wages.

35. With regard to the aggregate price level, economists generallybelieve:
A) price stability is a desirable goal.
B) inflation is worse than deflation.
C) deflation is worse than inflation.
D) inflation actually benefits most retired people.

36. Recessions are periods when:
A) output rises.
B) the aggregate price level rises.
C) the unemployment rate is falling.
D) output and employment are falling.

37. Monetary policy attempts to affect the overall level ofspending in the economy by changes in:
A) taxes.
B) taxes and spending.
C) taxes and interest rates.
D) interest rates and the quantity of money.

38. The basic difference between an economic recession and economicdepression is that:
A) the latter is a shorter economic downturn than the former.
B) during recessions output falls faster than duringdepressions.
C) during depressions employment falls faster than duringrecessions.
D) the former is a longer economic downturn than the latter.

39. The central mission of modern macroeconomics is to prevent_____ from happening again.
A) recessions
B) inflation
C) deflation
D) anything like the Great Depression

40. Fiscal policy refers to:
A) the control of interest rates.
B) the control of government spending and taxations.
C) the control of the quantity of money.
D) the control of interest rates and of government spending.

byzantiumant655

Case (20 Marks)

In August 2008, Wal-Mart Stores announced that its profit rose 17 percent in the second quarter and that it is raising its full-year forecast. In a challenging economy, the world's largest retailer benefited from low prices and its moves to cut costs. Wal-Mart's President and Chief Executive Lee Scott said that, "While inflation and higher fuel costs are pressuring suppliers, retailers and customers worldwide, we're confident that Wal-Mart is well positioned for this economy." Chief Financial Officer Torn Schoewe attributed the better second-quarter profits to tighter inventory controls, which led to fewer markdowns on merchandise. One of Wal-Mart's goals â which it successfully met â was keeping inventory growth at half the rate of its sales growth which it successfully met. In contrast, sales at department stores and specialty retailers were lagging behind. What is the key to such good results? Wal-Mart overhauled its strategy. Instead of announcing any price increases to cope with the tough economy, the company slashed its expansion plans. It refocused on lower prices, improved the mix of merchandise offered, cleaned up its stores and provided friendlier and faster customer service. But there is more to Wal-Mart's success over the years than just tighter inventory controls and lower prices. Wal-Mart is truly a great company. A strong organizational culture is the foundation for making a good company a great one. The secret to Wal-Mart's success has long been attributed to its strop culture. Analysts like Jim Collins believe that W al-Mart had the kind of 'cult-like' culture that is shared by all great companies. +Wal-Mart employees are referred to as `Walmartians' which is a sign of a unique culture shared by them. This culture is responsible for a company of this magnitude to be able to sustain its entrepreneurial spirit decade after decade. Since its early days, Wal-Mart achieved remarkable growth rates and was the first trillion dollar company in the world.)1n 1999, Wal-Mart became the largest private employer in the US with 1,140,000 Associates. But with amazing success also came criticism.&al-Mart was sued many times and even held the record for being sued the maximum at one time. Its practices and culture were held responsible for killing small local retailers. It was also criticized for gender-based discrimination, its overtime policies and using sweatshop products

Answer the following question.

Q1. What does the reference of Wal-Mart employees as `WalMartiansâ indicate?

Q2. Discuss why Wal-Mart was criticized and often sued.

Q3. Give the reasons for great success of Wal-Mart, the retailer company.

Q4. Debate the importance of organizational culture in making the company great.

ECO220Y1 Chapter Notes - Chapter 0: Economic Forecasting, Scatter Plot, Central Tendency

ECO220Y1 Full Course Notes

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