# Question

The Organization for Economic Cooperation and Development (OECD) tracks various summary statistics of its member economies. The countries lie in Europe, parts of Asia, and North America. Two variables of interest are GDP (gross domestic product per capita, a measure of the overall production in an economy per citizen) and trade balances (measured as a percentage of GDP). Exporting countries tend to have large positive trade balances. Importers have negative balances. These data are from the 2005 report of the OECD. Formulate the SRM with GDP as the response and Trade Balance as the explanatory variable.

(a) On average, what is the per capita GDP for countries with balanced imports and exports (i.e., with trade balance zero)? Give your answer as a range, suitable for presentation.

(b) The foreign minister of Krakozia has claimed that by increasing the trade surplus of her country by 2%, she expects to raise GDP per capita by $4,000. Is this claim plausible given this model?

(c) Suppose that OECD uses this model to predict the GDP for a country with balanced trade. Give the 95% prediction interval.

(d) Do your answers for parts (a) and (c) differ from each other? Should they?

(a) On average, what is the per capita GDP for countries with balanced imports and exports (i.e., with trade balance zero)? Give your answer as a range, suitable for presentation.

(b) The foreign minister of Krakozia has claimed that by increasing the trade surplus of her country by 2%, she expects to raise GDP per capita by $4,000. Is this claim plausible given this model?

(c) Suppose that OECD uses this model to predict the GDP for a country with balanced trade. Give the 95% prediction interval.

(d) Do your answers for parts (a) and (c) differ from each other? Should they?

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