Question: For part a, do not report modified R². Report the results from part a in a table (see HW 1 Q4 for an example, just put the N and R² and adjusted R2 below the table). For part b, limit discussion to the constant, the coefficient on US Military sales/assistance and any one other independent variable. For the constant and these 2 independent variables discuss the substantive meaning, and substantive and statistical significance of each of the variables. Be as brief as possible. (part a = 4 points, part b = 18 points)

In order to explain the US defense budget, you are asked to consider the following model:

\[{{Y}_{t}}={{B}_{1}}+{{B}_{2}}{{X}_{2t}}+{{B}_{3}}{{X}_{3t}}+{{B}_{4}}{{X}_{4t}}+{{B}_{5}}{{X}_{5t}}+{{\Pi }_{t}}\]

Where \({{Y}_{t}}\) =defense budget-outlay for year t1, $ billions

X2t=GNP for year t, $ billions

X3t=U.S. military sales/assistance in year t, $ billions

X4t=aerospace industry sales, $ billions

X5t=military conflicts involving more than 100,000 troops. This variable takes a value of one when 100,000 or more troops are involved but is equal to zero when that number is under 100,000.

To test this model, you are given the data in Table 7.8 (the other attachment).

A. Estimate the parameters of this model and their standard errors and obtain R(square), modified R(squared), and R(bar squared)

B. Comment on the results, taking into account any prior expectations you have about the relationship between Y and the various X variables.