Multiples regression in economic forecasting

Document Type:Thesis

Subject Area:Economics

Document 1

With this approach, high rates should be, matched to high rates of the other variable. Regardless, a dilemma on the high-high matching approach comes in when there are contextual differences in the endogeneity of the economic growth. Some growth may be attributed to the import of goods especially the unprocessed ones and other attributed to exports (overproduction in local industries) (Wooldridge, 2015). In the prior case, growth caused by imports, low tariff rates on imports match-high growth rates. Strictly, the matching of the projecting should be done carefully considering the sources of growth in the economy. A unit increase in the tariffs on energy bars causes a 6. 45698 decrease in the average demand of the energy bar. On the other hand, a unit increase in the number of stores where the energy bars are offered would cause a 4.

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07244 increase in average demand of the energy bars. It should be noted that changes in the average income per person, the tariff charge on the imports of energy bars and the number of stores significantly affect the average demand of the energy bars at 1%, 5% and 10% significance levels. Many individuals tend to increase their consumption behaviour whenever they have more disposable income. It has been established that the amount of income that individuals receive is directly proportional to their consumption spending. Increase in the level of inflation, however, cause lead to higher prices and depreciation of the currency (Montgomery, Jennings & Kulalici, 2015). This leads to the decreased purchasing power of the individuals: the amount that used to purchase a K basket of goods cannot afford to purchase it at an increased level of inflation.

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It is advisable that an increase in inflation rates that are not proportionally compensated with an increase in personal income decrease the average demand for consumer goods. Tariff charges change independently despite the changes in the inflation rates in the economy. However, reduction in consumption is positively correlated with increased tariffs charges on the imports. This reduces the aggregate demand and output thereof. How changes in average income, tariffs and income inflation rates affect the average demand. A regression on the effects of changes in the personal incomes, tariff charges, inflation rates and a number of stores where energy bars are offered with average demand as the response variable indicates that a percentage change in the Tariff charges on imports causes a negative 0.

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This increases confidence and maintains the consumer price index for goods, potentially restoring the consumer's utility level (Box et al. Similarly, when Tariff Charges increase, the consumption patterns tend to increase in a decreasing a manner to a certain point when the effect reach the producers. When the producers are informed, they reduce the rate of production which consequently reduce the aggregate demand. The channels under which Tariff charges reduce the aggregate demand are tied to income effect and effects on the supply (price mechanism) (Friedman, 2017). Changes in income on the other side cause directly proportional changes on the aggregate demand. This positive change in supply coupled with consumers increased the ability to lead to a rise in the equilibrium quantity demanded.

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Increase in the average income per person may necessarily imply that there is increased employment in the economy that has resulted from increased capacity of the firms to hire and cater for expected demand (Chatfield, 2016). As such the rates of employment reduce and thus high inflation occurs as the increased incomes are spent in the market items. Generals prices hike as the equilibrium quantity hike generally leading to serial inflation. At this point, the increase in income leads to positive changes in the inflation rate. In areas where individuals are quite busy doing manual work might be necessary to earn more market. In these areas, the company can optimize on producing and selling more at cheaper prices while maintaining the profit levels (Friedman, 2017).

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When consumption is low, consumers have low incomes, the management may too decide to produce even more and lower the prices as a mechanism to maintain customers. As production a production mechanism, if production materials are imports, Schmeckt Gut should plan to produce and warehouse more energy bars when the Tariff Charges are low in order to earn more profits when there are expectations that the Tariff charges will rise. Similarly, during periods of low inflation, the management needs a mechanism that it can produce excess and warehouse it in order to keep in trend with boom shocks that come along with high level of inflation and real GDP positive growth (Laffer, 2016). 79E-08 Residual 16 0. 004807 Total 20 0. 881489         Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.

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