Regression question

an analyst estimated the following regression between the change in real industrial production and industry sales: sales=8950+ percentage change in real industrial production. Inflation is expected to be 3%. If industrial production was 1.2 trillion last year and is expected to be 1.25 trillion next year, forecast for the insdustry sales is closes to: 1. 9,397 2. 9,610 3. 10,396 4. 10,596

I believe the ans is A: 9,397. I got that 'coz I came across this question in Book6 exam 1 am. I think you forgot to type the slope coeff, which is 395. So If I remember the question correctly the regression equation given in the question is 8950 + 395 * percentage change in real industrial production. Here is why this question stuck in my head. % increase in Industrial production due to inflation is 1.2 * 1.03 = 1.236. Real industrial production change is (1.25 / 1.236)-1 = 1.1327% For the longest time I was plugging 0.01327 in the equation. but you need to plug 1.1327 so ans is 8950 + 395*1.1327 = 9,397

my problem with this question is that the nominal % change is smaller than the real %. But now that you put it that way, taking in account the increase in sales thats due to inflation this makes sense. thanks,

sorry guys, i go with d. Production change is: 1.25/1.2 =1.0417 --> 4.17 % Because it is not mentioned that production is a notional value we have to consider that they are already real values. (That’s what I learned in economics :slight_smile: so: 8950 + 395 * 4.17=? ?=10596