PracticeProblems3 - Practice Problems 3 ECON 3210 O Use of Economic Data Laura Salisbury York University Winter 2015 7.1(a When GPA is increased by 1

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Practice Problems 3ECON 3210 O: Use of Economic DataLaura SalisburyYork UniversityWinter 20157.1 (a) When GPA is increased by 1 unit and other variables are held constant, the averagestarting salary is estimated to increase by \$1,643 (t= 4.66, so this is significant atconventional levels). Students who take econometrics are estimated to have a startingsalary \$5,033 higher than those who did not (t= 11.03, so again this is significant).The intercept suggests that the starting salary for someone with 0 GPA and whodid not take econometrics is \$24,200. However, this figure is likely to be unreliablebecause there would be no one with a zero GPA. TheR2= 0.74, which implies that74% of the variation in starting salary is explained by GPA and METRICS.(b) A suitable modification to the equation is:SAL=β1+β2GPA+β3METRICS+β4FEMALE+eThe parameterβ4is an intercept indicator variable that captures the effect of genderon starting salary, all else held constant:E(SAL) =(β1+β2GPA+β3METRICSifFEMALE= 0(β1+β4) +β2