An analyst estimated the following regression b/w change in real industrial production and industry sales: industry sale = 8950 + 295 x percentage change in real ind production. Inflation is expected to be 3%. If ind prod was 1.2 trillion last year and is expected to be 1.25 trill next year, what is the forcast of sales: A. 9,397 B. 9610 C. 10396 D. 10596

Is this suppost to be this difficult? Every ans. I get is not listed… I get anywhere for 9300 to 11000 depending on how I structure the Inflation

A? I actually get 9363…

LongonCFA, how did u get that answer? Answer is A, and whatever method i try does not come close to it… This is a #26 on Book6, Exam1, Morning session btw.

1.2 x 1.03= 1.236 = amount of increase in production due to inflation 1.25-1.236 = .014 actual increase .014/1.2= 1.17% 295 *1.17+8950= 9295…

Ignore that calculation above… should be 1.25/1.2=1.0417 1.0417/1.03 = 1.0113 8950+ 395* 1.13 …btw the formula is suppose to be 8950+395…not 295…that is why answers are alittle off…

Why did u divide the growth rate by inflation rate? Do would u assume that the prices they give already accounts for the inflation effect?