ps2_ans - Department of Economics University of California...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Department of Economics Spring 2006 University of California, Berkeley Prof Woroch Problem Set 2 Suggested Answers 1 You are given the following results from the regression of expenditures of imported goods on per capita income: ˆ Y t = - 261 . 09 + 0 . 2453 * X t Std Error = (31 . 320) (0 . 015) R 2 = 0 . 9388 t = (8 . 34) (16 . 616) n = 20 (1) where Y t is the consumption of imported goods for the U.S., X t is per capita income, and t [1968-1987]. a. Fill in the blanks. b. Give your economic and econometric interpretations of the two estimated coefficients from the regression: when the income per capita increases by $100, the consumption of imported goods per capita increases on average by $25. If the per capita income were equal to 0, the consumption of imported goods would be on average -261.09 dollars (it doesn’t make much sense though, because the income per capita will never be equal to 0). c. Is the slope coefficient different from zero? At what significance level? What is the associated p-value? The slope coefficient β 1 has a t-value of 16.616. Here we have n = 20 observations, so we need to compute the t n - 1 , 1 - α/ 2 threshold. We see that for 19 degrees of freedom (20-1=19), the t-value for a 1% significance level is 2.54, so we reject the null hypothesis (we accept that the coefficient is significant) at least at the 1% S.L. The p-value associated is close to 0. d. Given the R 2 value, do you believe that higher expenditures on imported goods leads to higher personal income? Explain your reasoning. R 2 is close to 1, meaning that the regres- sion line almost goes through the points. Knowing that the per capita income leads to higher
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern