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Unformatted text preview: Econometrics (ECON 140- DUNCAN) 13 Feb 2008 Problem Set #1 3.23) [a]. Yes, the observed signs of the coefficients are in line with my own intuition because income and taxes historically have a positive relationship (if aggregate income increases then the amount of taxes will also increase). The negative alpha coefficient also makes sense because it means that when a person is making no income (income = 0), then they pay no taxes and instead receive payments from the government. [b]. The beta coefficient for income is .142. This represents that as income increases by one dollar (or one unit), personal taxes will also increase by .142 dollars (or units). This means that any increase in income leads to a 14.2% increase in U.S. taxes. The alpha for the regression is -.221, which says that if someone's income were to be zero, the government would be giving them some amount of money. But we cannot determine exactly what the amount would be since it includes other factors as well. [C]. Alpha ( ) : H : = 0 H a : The alpha coefficient has a p-value of .087, which translates to a 8.7% probability of being a random act. Since .087 > .05, the coefficient is not significant at the 5% level and therefore the null hypothesis ( = 0) cannot be rejected....
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- Spring '08