Question: Regression equations are sometimes estimated using an explanatory variable that is a deviation from some value of interest. An example is a capacity utilization rateunemployment

Regression equations are sometimes estimated using an explanatory variable that is a deviation from some value of interest. An example is a capacity utilization rateunemployment rate equation, such as:

Ut = ao + a1 (CAPt -CAP[)+ er where CAP~ is a single value representing the capacity utilization rate corresponding to full employment (the value of 87.5% is sometimes used for this value).

(a) Will the estimated intercept from this equation differ from that in the equation with only CAPt as an explanatory variable? Explain.

(b) Will the estimated slope coefficient from this equation differ from that in the equation with only CAPt as an explanatory variable? Explain.

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