Equation (2) estimated the relationship between food expenditure (E) and total expenditure (T) in India.

--- Equation (2)

s.e. (0.078)

R² = 0.3698 N = 55

Jarque-Bera statistics = 0.258 [p-value = 0.6578]

1. Based on Equation (2), test whether an increase in T will increase E at 5% significance level.

2. Test the overall significance of Equation (2) at 5% significance level.

3. Test whether the residuals of Equation (2) is normally distributed at 5% significance level

4. Interpret the R² of Equation (2).

5. Which of the classical assumptions is most likely to be violated in Equation (2)? Justify your answer.

Suggest TWO (2) ways to avoid the violated classical assumption stated in part (e). Justify your answers.

Statistical Tables 0.1 0.05 0.05 0.025 0.02 0.01 0.01 0.005 Appendix 1: t distribution Two tails 0.2 One tail 0.1 df 20 1.33 30 1.31 40 1.30 50 1.30 60 1.30 1.72 1.70 1.68 1.68 1.67 2.09 2.04 2.02 2.01 2.00 2.53 2.46 2.42 2.40 2.39 2.84 2.75 2.70 2.68 2.66 4 6 7 8 Appendix 2: F-distribution (a=0.05) df2\df1 1 2 3 20 4.35 3.49 3.10 30 4.17 3.32 2.92 40 4.08 3.23 2.84 50 4.03 3.18 2.79 60 4.00 3.15 2.76 2.87 2.69 2.61 2.56 2.53 5 2.71 2.53 2.45 2.40 2.37 2.60 2.42 2.34 2.29 2.25 2.51 2.33 2.25 2.20 2.17 2.45 2.27 2.18 2.13 2.10 Statistical Tables 0.1 0.05 0.05 0.025 0.02 0.01 0.01 0.005 Appendix 1: t distribution Two tails 0.2 One tail 0.1 df 20 1.33 30 1.31 40 1.30 50 1.30 60 1.30 1.72 1.70 1.68 1.68 1.67 2.09 2.04 2.02 2.01 2.00 2.53 2.46 2.42 2.40 2.39 2.84 2.75 2.70 2.68 2.66 4 6 7 8 Appendix 2: F-distribution (a=0.05) df2\df1 1 2 3 20 4.35 3.49 3.10 30 4.17 3.32 2.92 40 4.08 3.23 2.84 50 4.03 3.18 2.79 60 4.00 3.15 2.76 2.87 2.69 2.61 2.56 2.53 5 2.71 2.53 2.45 2.40 2.37 2.60 2.42 2.34 2.29 2.25 2.51 2.33 2.25 2.20 2.17 2.45 2.27 2.18 2.13 2.10