a. Suppose we conduct a regression with RGDP as the dependent variable and TREND, UR, CPI and M1 as the explanatory variables. Run this regression and test for multicollinearity.

If multicollinearity exists, eliminate variables that cause the problem and provide your final model that does not display any multicollinearity.

b. Suppose we want to run the model where RGDP is the dependent variable and TREND, UR, CPI and M1 are the explanatory variables. We have been asked to identify the best model to estimate RGDP but assume we are also very lazy.

As such, we decide to run a simple stepwise regression to determine the model for us.

Conduct this and identify the best model? Explain why you chose this model?

Use the following data:

YEAR	QTR	RGDP	TREND	UR	CPI	M1
1962	1	3192.380	1	5.100	29.043	140.533
1962	2	3194.653	2	5.267	29.193	141.533
1962	3	3203.759	3	5.600	29.370	140.267
1962	4	3275.757	4	5.133	29.397	139.900
1963	1	3258.088	5	5.233	29.573	139.600
1963	2	3274.029	6	5.533	29.590	140.900
1963	3	3232.009	7	6.267	29.780	140.833
1963	4	3253.826	8	6.800	29.840	141.533
1964	1	3309.059	9	7.000	29.830	142.567
1964	2	3372.581	10	6.767	29.947	143.400
1964	3	3438.721	11	6.200	29.990	144.700
1964	4	3500.054	12	5.633	30.107	145.633
1965	1	3531.683	13	5.533	30.220	146.600
1965	2	3575.070	14	5.567	30.307	146.467
1965	3	3586.827	15	5.533	30.380	147.267
1965	4	3625.981	16	5.767	30.477	148.800
1966	1	3666.669	17	5.733	30.533	150.167