Founded in 1973, The Heritage Foundation is a research and educational institute with the mission to promote economic freedom and free enterprise. The Foundation provides a ranking of nations throughout the world based on their Economic Freedom Index. The EFI measures ten components of economic freedom, assigning a grade in each using a scale from 0 to 100, where 100 represents the maximum freedom. The ten component scores are then averaged to give an overall economic freedom score for each country. A total of 179 countries is typically rated

(http://www.heritage.org/index/ranking).

Independently of The Heritage Foundation's ranking, the IMF projects rates of economic growth over the next two quarters. A sample of 12 nations and their EFI ratings is given in the accompanying table along with the IMF projected growth rates (PrGr).

a. An international investor conducts a hypothesis test of the regression coefficient at the 5% level to determine if there might be a statistically significant relationship. What did he learn?

b. If the 99% confidence interval for the conditional mean growth rates for nations with a EFI of 70 is above 3%, the investor in part A will begin a campaign to raise funds for future overseas investments. What will his decision be?

c. The investor wishes to determine what portion of the changes in growth rates is explained by changes in a nation's level of economic freedom. What would you tell him?

d. Now the investor has plans to expand operations in a country with an EFI of 74.6. What rate of growth can he expect with a confidence level of 99%?

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Nation Hong Kong UK Finland US Japan Denmark Canada Germany Taiwan Austria France Mexico World Rank 1 16 17 9 20 8 6 23 25 21 64 48 EFI 89.7 74.5 74 77.8 72.8 78.6 80.4 71.8 70.8 71.9 64.6 67.8 The results of an OLS model are given here: PrGr 3.35 3.12 3.11 3.17 3.29 3.21 3.21 3.08 3.06 3.08 2.97 3.02