(a) What  are the problems associated with R² and how can adjusted R² solve them?

(b) If the regressors  in an equation are highly correlated, which measures can be used to solve this problem?

(c) What do you understand by a dynamic model and show all the steps involved in deriving its long-run static equilibrium solution?

(d) Suppose we have a model given by:

    log Q_t = 42.95 + 0.387 log K_t +0.613 log L_t
      (1.96)      (3.01)              (2.19)

Where Q is output, K is capital and L is labour. R² = 0.78, D-W=2.45, number of observation is 35 years and the values in brackets represent t-ratios.