This question refers to the panel data regressions summarized in Table 12.1.
a. Suppose that the federal government is considering a new tax on cigarettes that is estimated to increase the retail price by $0.50 per pack. If the current price per pack is $7.50, use the regression in column (1) to predict the change in demand. Construct a 95% confidence interval for the change in demand.
b. Suppose that the United States enters a recession and income falls by 2%. Use the regression in column (1) to predict the change in demand.
c. Suppose that the recession lasts less than 1 year. Do you think that the regression in column (1) will provide a reliable answer to the question in (b)? Why or why not?
d. Suppose that the F-statistic in column (1) was 3.6 instead of 33.6. Would the regression provide a reliable answer to the question posed in (a)? Why or why not?