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Using 1994 as origin, obtain a straight-line trend by the method of least square. Also find the value for year 1997.

Economics

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Answer

Yc=166.857+6.857XY_c = 166.857 + 6.857X

187.428

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here's the solution for question 12.

Question 12: Using 1994 as origin, obtain a straight-line trend by the method of least square. Also find the value for year 1997.

The straight-line trend equation is given by Yc=a+bXY_c = a + bX, where YcY_c is the trend value, XX is the deviation from the origin, and aa and bb are constants.
The normal equations for the method of least squares are:

  1. ∑Y=na+b∑X\sum Y = n a + b \sum X
  2. ∑XY=a∑X+b∑X2\sum XY = a \sum X + b \sum X^2

Given data:

YearsIncome (Y)
1990140
1991144
1992160
1993152
1994168
1995176
1996180

Origin = 1994.
Let X=Year−1994X = \text{Year} - 1994.

  1. Create a table to calculate ∑Y\sum Y, ∑X\sum X, ∑XY\sum XY, and ∑X2\sum X^2.

    YearIncome (Y)X = Year - 1994XYX21990140−4−560161991144−3−43291992160−2−32041993152−1−15211994168000199517611761199618023604Total1120-7-92835\begin{array}{|c|c|c|c|c|} \hline \textbf{Year} & \textbf{Income (Y)} & \textbf{X = Year - 1994} & \textbf{XY} & \textbf{X}^2 \\ \hline 1990 & 140 & -4 & -560 & 16 \\ 1991 & 144 & -3 & -432 & 9 \\ 1992 & 160 & -2 & -320 & 4 \\ 1993 & 152 & -1 & -152 & 1 \\ 1994 & 168 & 0 & 0 & 0 \\ 1995 & 176 & 1 & 176 & 1 \\ 1996 & 180 & 2 & 360 & 4 \\ \hline \textbf{Total} & \textbf{1120} & \textbf{-7} & \textbf{-928} & \textbf{35} \\ \hline \end{array}

    Here, n=7n = 7.
    ∑Y=1120\sum Y = 1120
    ∑X=−7\sum X = -7
    ∑XY=−928\sum XY = -928
    ∑X2=35\sum X^2 = 35

  2. Substitute the values into the normal equations.

    1. 1120=7a+(−7)b  ⟹  1120=7a−7b1120 = 7a + (-7)b \implies 1120 = 7a - 7b
    2. −928=(−7)a+35b  ⟹  −928=−7a+35b-928 = (-7)a + 35b \implies -928 = -7a + 35b
  3. Solve the system of equations for aa and bb.

    Add equation (1) and equation (2):
    (1120)+(−928)=(7a−7b)+(−7a+35b)(1120) + (-928) = (7a - 7b) + (-7a + 35b)
    192=28b192 = 28b
    b=19228=487≈6.857b = \frac{192}{28} = \frac{48}{7} \approx 6.857

    Substitute the value of bb into equation (1):
    1120=7a−7(487)1120 = 7a - 7 \left(\frac{48}{7}\right)
    1120=7a−481120 = 7a - 48
    1120+48=7a1120 + 48 = 7a
    1168=7a1168 = 7a
    a=11687≈166.857a = \frac{1168}{7} \approx 166.857

  4. Write the straight-line trend equation.

    Yc=a+bXY_c = a + bX
    Yc=166.857+6.857XY_c = 166.857 + 6.857X

  5. Find the value for the year 1997.

    For the year 1997, X=1997−1994=3X = 1997 - 1994 = 3.
    Substitute X=3X=3 into the trend equation:
    Yc=166.857+6.857(3)Y_c = 166.857 + 6.857(3)
    Yc=166.857+20.571Y_c = 166.857 + 20.571
    Yc=187.428Y_c = 187.428

    The straight-line trend equation is Yc=166.857+6.857X\boxed{Y_c = 166.857 + 6.857X}.
    The trend value for the year 1997 is 187.428\boxed{187.428}.

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