Economics 513, Test Midterm Problem 1 To study the relation between a dependent variable y and K-1 independent variables x 2 , . . . , x K-1 we specify a multiple linear regression model. (i) Give the equation for the inexact linear relation between y and x 2 , . . . , x K-1 . The relation has an intercept. The data, y i , x i 2 , . . . , x iK , i = 1 , . . . , n are a random sample from the population of US households. (ii) Represent the observations in matrix notation, and give the multiple linear regression model in matrix notation. (iii) Give the assumptions for the Classical Linear Regression (CLR) model. (iv) For one of the assumptions in the case considered in this problem is it suﬃcient to assume that the random error for an observation is mean independent of the vector of independent variables for that observation? Why (not)? (v) Is the assumption of no serial correlation satisﬁed in this case? Why (not)? Problem 2
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