Summer 2004 - Jeon's Class - Exam 2

Summer 2004 - Jeon's Class - Exam 2 - Economics 120B...

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Economics 120B Name: _________________________ Professor Yongil Jeon September 1, 2004 Student ID#: _________________________ Exam 2: Econometrics 120B 1. (10 points) In a regression analysis involving 30 observations, the following estimated regression equation was obtained, y = 17.6 + 3.8x 1 – 2.3x 2 + 7.6x 3 + 2.7x 4 For this estimated regression equation, SST=1805 and SSE=1760. Supposed variables x 1 and x 4 are dropped from the model, and the following estimated regression equation is obtained. y = 11.1 - 3.6 x 2 + 8.1x 3 For this model, SST=1805 and SSE=1705. Use an F test and a 0.05 level of significance to determine (F 2,25 is 3.39 with the 5% level of significance) whether x 1 and x 4 contribute significantly to the model. Note that SST=SSE+SSR. Answer 100 1705 1805 = = = r r SSE SST SSR 45 1760 1805 = = = ur ur SSE SST SSR () () ( ) 8 . 1 4 . 27 ) 1 4 30 /( 45 2 / 45 100 1 / / = = = k n SSR q SSR SSR F ur ur r =15.22 Because F=15.22>3.39= F 2,25,0.01 ; thus, x 1 and x 4 are significant.
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2 EXAM #2, ECON 120B, Summer 2004 2. (25 points) A variation of the wage-determination equation for the British economy is as follows W t =8.582 + 0.364 P t +0.004 P t-1 – 2.560 U t (1.129) (0.080) (0.072) (0.658) R 2 =0.873, df =15 Where W t =wages and salaries per employee P t =Prices (British pounds) of final output at factor cost U t =unemployment in Great Britain as a percentage of the total number of employees of Great Britain The estimated standard errors are given in the parentheses. (a) (5 points) Interpret the equation, including R 2 . (Answer) Ceteris paribus, a 1 (British) pound increase in the prices of final output in the current year leads on average to a 0.364 pound (or 36.4 pence) increase in wages and salary per employee. Similarly, a 1 pound increase in the prices of final output in the previous year, leads on average to an increase in wages and salary per employee of about 0.004 pounds. Holding all other things constant, a 1 percent increase in the unemployment, on average, leads to about 2.56 pounds decrease in wages and salary per employee. The three regressors explained about 87 percent of the variation in wages and salaries per employee. (b) (5 points) Which of the estimated coefficients are individually statistically significant? Answer If you divide the estimated coefficients by their standard errors, you will obtain the t values under the null hypothesis that the corresponding true population coefficient values are zero. Under the zero null hypothesis the estimated t values for the three explanatory variables are, respectively, 4.55, 0.055, and -3.89. All but the second of these t values are statistically significant. (c) (5 points) What is the purpose of introducing both P
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This note was uploaded on 04/23/2008 for the course ECON 120B taught by Professor Jeon during the Summer '08 term at UCSD.

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Summer 2004 - Jeon's Class - Exam 2 - Economics 120B...

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