HW5A - Econ 444 Elementary Econometrics Fall 2007 ANSWERS...

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Econ 444 Elementary Econometrics Fall 2007 ANSWERS TO HOMEWORK EXERCISE: 5 (1.a) The number of observation is 2006 - 1981 + 1 = 26. The t -value is - 0 . 92 / 0 . 36 = - 2 . 56. So ˆ Y i = 4 . 217 - 0 . 92 X i (0 . 36) t = - 2 . 56 N = 26 ,R 2 = 0 . 875 (1.b) When the price of coffee is zero, the expected demand is estimated to be 4.217. When the price of coffee increases by one unit, the expected demand is estimated to decrease by 0.92 units. (1.c) The degrees of freedom are 26 - 2 = 24. The critical value, t C = 2 . 064, from Table B-1. So the lower bound for the confidence interval is - 0 . 92 - 2 . 064 · 0 . 36 = - 1 . 66. The upper bound is - 0 . 92 + 2 . 064 · 0 . 36 = - 0 . 18. The confidence interval is - 1 . 66 β 1 ≤ - 0 . 18 (1) (1.d) The critical value, t C = 2 . 064, from Table B-1. Because | t | = 2 . 56 is greater than the critical value, we reject the null hypothesis. (1.e) Because the demand is expected to decrease when the price rises, H A : β 1 < 0 makes sense. For the 1% level, the critival value,
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HW5A - Econ 444 Elementary Econometrics Fall 2007 ANSWERS...

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