Question: 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

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

Year x2 X4 1971 10227 .0 121.3 776.8 4.89 79367 1972 10872 0 125.3 839.6 4.582153 1973 1350 133.949.8 7.38 85064 1974 8775 7.5 147.7 1038.4 8.61 86794 1975 8539 127.6 161.2 1142.8 6.16 85846 1976 9994 135.7 70.5 1252.6 5.22 88752 1977 1046 142.9 181.5 1379.3 5.50 92017 1978 11164 153.8 195.4 1551 7. 96048 1979 10559 166.0 217.4 1729.3 10.25 98824 1980 8979 79.3246.8 1918.0 11.28 99303 1981 1982 7980 197.6 289. 2261.4 11.20 99526 1983 9179 202.6 298.4 2428. 8.69 100834 984 10394 208.5 311.1 2670.6 9.65 105005 1985 11039 215.23222 2841.1 7.75 107150 1986 1450 224.4328.4 3022.1 6.31 109597 8535 190.2 272.4 2127.6 13.73 100397

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