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interested in predicting unemployment, we would probably want to predict next year's

unemployment from this year's inflation. We can construct an equation to do this by matching

each year's inflation with the next year's unemployment, as shown in the following table.

6. Compute the least-squares line for predicting next year's unemployment from this

year's inflation.

7. Predict next year's unemployment if this year's inflation is 3.0%.

8. Compute the correlation coefficient between this year's inflation and next year's

unemployment.

9. What proportion of the variance in next year's unemployment is explained by this year's

inflation?

Fig: 1