Question 2 (15 Marks)

a) (Regression)

To determine how the number of housing starts is affected by mortgage rates, an economist
recorded the average mortgage rate and the number of housing starts in a large county for the
past 10 years. These data are listed below:

Rates 8.5 7.8 7.6 7.5 8.0 8.4 8.8 8.9 8.5 8.0

Starts 115 111 185 201 206 167 155 117 133 150

i) Determine the regression equation

ii) Test at 5% level of significance the existence of the stated relationship in (i).

iii) What do the coefficient of the regression line tell you about the relationship between
mortgage rates and housing starts?

Answer:
i) Step 1. Determine the variable
Determine the X variable and Y variable. X is an independent variable and Y is a dependent
variable. Based on the problem, the housing starts is an independent variable or X,
meanwhile the mortgage rate is a dependent variable or Y.

Step 2. Make a regression table

Responden Starts (X) Rates (Y) XY X2 Y2
1 115 8,5 977,5 13225 72,25
2 111 7,8 865,8 12321 60,84
3 185 7,6 1406 34225 57,76
4 201 7,5 1507,5 40401 56,25
5 206 8,0 1648 42436 64,0
6 167 8,4 1402,8 27889 70,56
7 155 8,8 1364 24025 77,44
8 117 8,9 1575,3 31329 79,21
9 113 8,5 1130,5 17689 72,25
10 150 8,0 1200 22500 64,0
Total 1600 82 13077,4 266040 674,56

Step 3. Determine koefisien of a and koefisien of b.

b=n ∑ XY −¿ ¿ ¿
 130774−131200
¿
2660400−2560000
−426
¿
100400
¿−0,004

a=
∑ Y −b ∑ X = 82−(−0,004 ) (1600) = 82+6,4 = 88,4 =8,84
n 10 10 10

Step 4. Determine the regression equation

Regression Equation: Y = a + b(X)
Then, the regression equation for this problem is Y = 8,84 – 0,004(X)

It means, if the housing starts (X) = 200, then the mortgage rate (Y):
(Y) = 8,84 – 0,004(X)
= 8,84 – 0,004(200)
= 8,84 – 0,8
= 8,0

ii) Test at 5% level of significance the existence of the stated relationship in (i)
The value of ∑ x 2, ∑ y2 , dan ∑ xy can be determined by:

∑ x 2=∑ X 2−¿ ¿ ¿ ¿
= 266040 – 256000
= 100400

∑ y2 =∑ Y 2−¿ ¿ ¿ ¿
= 674,56 – 672,4
= 2,16

∑ xy =∑ XY −(∑ X ) ¿ ¿ ¿ ¿
 = 13077,4 – 13120
= -42,6

The value of standart error from regression coefficient (Sb) can be determined by:

∑ y 2−b . ∑ xy =
S xy =
√ n−2 √ 2,16−(−0,004 ) (−42,6)
10−2 √=
2,16−0,17
8
1,99
¿
√ 8
= √ 0,248=0,498

S xy 0,50 0,50
Sb = = = =0,0054
√∑ x 2
√10040 100,1

Use the T-test to test the hypothesis partially:

- Statistic hypothesis by two side test: Ho : b = 0 and Ha: b ≠ 0
b −0,004
- Value of t (count) is: = =−1
Sb 0,004
- Value of t (table) with degree of freedom (df) : 10 – 2 = 8 and the significance
level (α ¿=0,005 is 2,3060
t(0,05; 8) = 2,3060

Since the value of t (count) smaller than t (table) or -1 < 2,3060 then reject the null
hypothesis (Ho) and accept the alternative hypothesis (Ha). So the research hypothesis which
states that the mortgage rate influence (have a relationship) with the housing start is rejected
and there is no statistically significant.

Conclusion: The number of housing starts is no affected by mortgage rates

iii) Coefficient of correlation can be determine by:

r = n¿¿
 10 ( 13077,4 )−( 1600 ) (82)
¿ 2 2
√[ 10 ( 266040 )−(1600) ][ 10 ( 674,56 ) −(82) ]
130774−131200
¿
√( 2660400−2560000 ) (6745,6−6724)
−426 −426 −426
¿ = = =−0,289
√( 100400 ) (21,6) √ 2168640 1472,6

Coefficient of determination can be determine by:

R2=(r )2=(−0,289)2 =0,083

Based on the results of the correlation coefficient it can be said that the relationship between
independent variables (the housing start) with the dependent variable (mortgage rate) has a
very low since the r value is -28,9%

Based on the coefficient of determination (R2) 8,3%, it illustrate that the contribution of
independent variable (the housing start) on the rise and fall of dependent variable (mortgage
rate) is only 8,3%. The remaining 91,7% were contributed by other variables which not
included in the research table.