Estimating the multiplier

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Reference no: EM1375964

Recall from introductory economics that an raise of $1 in government spending may raise GDP through more than $1. The exact value by which GDP goes up is the multiplier. Using a sample of 41 observations, we estimate the multiplier; its estimated value is 4.0 and its standard error is .4.

a) Find a 90 percent confidence interval, a 95 percent confidence interval, and a percent confidence interval for the true value of the multiplier.

b) Would you believe that the value of the multiplier was 4.2? Would you believe that it was 2.8?

c) If government spending increases bt $20 billion, how much do you predict that GDP will rise? Find an interval in which it is 90 percent likely that the resulting true rise is GDP will br found.

Reference no: EM1375964

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