Problem 1: What is spurious regression ? Assuming randomly generate 1000 observations of EMBED Equation .3 variables X and Y using the following equations : EMBED Equation .3 EMBED Equation .3 (20 ) Report the graphs of X and Y. Run the regression : EMBED Equation 3 and report the estimated results . (10) What did you expect about the magnitudes EMBED Equation .3 and R-square ? How are the estimated values different from your expectations ? (10 ) In HW 2 problem 1, you estimated a regression of personal consumption expenditures (PCE ) on personal disposable income (PDI ). Both PCE and PDI were time series data . Explain why that regression was not spurious . (10 ) Problem 2: Using data set marco.xls (Posted under Topic 6) conduct unit-root test of the nominal interest rate and the exchange rate using the following methods : Graphical approach (10 ) ADF test (15 ) ACF test (15)