Consider the following regression results.* (The actual data are in the following table.)

where

UN = unemployment rate, %
V = job vacancy rate, %
D = 1, for period beginning in 1966€“IV
   = 0, for period before 1966€“IV
t = time, measured in quarters

a. What are your prior expectations about the relationship between the unemployment and vacancy rates?
b. Holding the job vacancy rate constant, what is the average unemployment rate in the period beginning in the fourth quarter of 1966? Is it statistically different from the period before 1966 fourth quarter? How do you know?
c. Are the slopes in the pre- and post-1966 fourth quarter statistically different? How do you know?
d. Is it safe to conclude from this study that generous unemployment benefits lead to higher unemployment rates? Does this make economic sense?

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2.7491 + 1.1507D, – 1.5294V, – 0.8511(D,V) (–12,5552) ÚN, = (26.896) (3.6288) (-1,9819) R2 0.9128