You are given the annual data in Table 8-5 for the United States for the period 1971 to 1986. Consider the following aggregate demand function for passenger cars:
InYi = B1 + B2InX2t + B3InX3t + B4InX4t + B5InX5t + B6InX6t + ut
where In = the natural log
a. What is the rationale for the introduction of both price indexes X2 and X3?
b. What might be the rationale for the introduction of the "employed civilian labor force" (X6) in the demand function?
c. How would you interpret the various partial slope coefficients?
d. Obtain OLS estimates of the preceding model.
DEMAND FOR NEW PASSENGER CARS IN
THE UNITED STATES, 1971 TO 1986