Menges developed the following econometric model for the West German economy*: Yt = β0 + β1Yt−1 + β2 It + u1t It = β3 + β4Yt + β5 Qt + u2t Ct = β6 + β7Yt + β8Ct−1 + β9 Pt + u3t Qt = β10 + β11 Qt−1 + β12

Menges developed the following econometric model for the West German economy*: Yt = β0 + β1Yt−1 + β2 It + u1t It = β3 + β4Yt + β5 Qt + u2t Ct = β6 + β7Yt + β8Ct−1 + β9 Pt + u3t Qt = β10 + β11 Qt−1 + β12

EBK HEALTH ECONOMICS AND POLICY

7th Edition

ISBN:9781337668279

Author:Henderson

Publisher:Henderson

Chapter4: Economic Evaluation In Health Care

Section: Chapter Questions

Problem 8QAP

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Question

G. Menges developed the following econometric model for the West German economy*:

Yt = β0 + β1Yt−1 + β2 It + u1t
It = β3 + β4Yt + β5 Qt + u2t
Ct = β6 + β7Yt + β8Ct−1 + β9 Pt + u3t
Qt = β10 + β11 Qt−1 + β12 Rt + u4t

where Y = national income
I = net capital formation
C = personal consumption
Q = profits
P = cost of living index
R = industrial productivity
t = time
u = stochastic disturbances

Required:

a. Which of the variables would you regard as endogenous and which as
exogenous?
b. Is there any equation in the system that can be estimated by the
single-equation least-squares method?
c. What is the reason behind including the variable P in the consumption function?

Definition Definition Monetary value of all goods and services produced in an economy during a financial year. National income also refers to the total income earned by the factors of production during a financial year.

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