Cost index again. In Exercise 43, we examined the Worldwide Cost of Living Survey cost of living index for the ten most expensive cities, whose 2011 indices range from Singapore’s 137 to Tokyo’s 161. Let’s add the ten least expensive cities to the data. Their 2011 indices range from 46 for Karachi (the least expensive city in 2011) to Dhaka and Manila at 62. Here is the resulting regression:


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(a) Sketch what a scatterplot of Index2011 vs. Index2010 is likely to look like. You do not need to see the data.

(b) Explain why the R2 of this regression is higher than the R2  of the regression in Exercise 43.


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