Question: Qt = 19.575 + 0.0289Xt – 0.0923Pt -99.568Ct -4.06Dt

(9.3125) (-1.7682) (-9.8964) (23.50)

R² = 0.857, D-W= 1.86

Where:

Qt = per capita personal consumption expenditures on shoes and other footwear during year t, at 1954 prices.

Xt = total per capita consumption expenditures during year t , at 1954 prices

Ct = stock of automobiles per capita in year t

Dt = dummy variable to separate pre- from post- WWII years;

Dt = 0 for years 1929 through 1941 and Dt = 1 for years 1946 to 1961

The number in parentheses below the estimated slope coefficients refer to the estimated statistics.

Using the above estimated equation, forecast the demand for shoes for (a) 1962 and (b) 1972 if the forecasted values of the independent or explanatory variables are those given in the following table:

Year X P C

1962 1,646 20 0.4

1972 2,236 30 0.6

(c) Why would you expect the error for the 1972 forecast to be larger than for the 1962 forecast?

To forecast demand for shoes for 1962 and 1972, the value of Dt is 1, since 1962 and 1972 are post WWII.