Question: The following data represent a random sample of 15 observations. Assume that Y is a linear function of X and a normally distributed disturbance term

The following data represent a random sample of 15 observations. Assume that Y is a linear function of X and a normally distributed disturbance term with a mean of zero and a constant variance. In other words: Y = a + bX + u, u ~ (0,2)

Obs X Y
1 80 48
2 6 44
3 15 14
4 9 43
5 64 58
6 99 54
7 63 34
8 80 31
9 52 26
10 17 22
11 26 68
12 87 55
13 56 35
14 36 38
15 32 66

3. Show how to calculate a and b - include formulas. Briefly discuss the interpretation of each of them. 4. Calculate the predicted value of Y - include formulas and the residual for each observation. 5. Calculate the Sum of Square Errors (SSE), Mean Square Error (MSE) and the Standard Error (s). Show the formulas for each of these, find their values, and explain their meanings in words.

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