midterm2 - Department of Economics University of California...

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

View Full Document Right Arrow Icon
Department of Economics Fall 2007 University of California Prof. Woroch Economics 140 : MIDTERM #2 INSTRUCTIONS : Write your name and your GSI’s name on the front cover of two blue books. Mark one as “#1” and the other as “#2.” Put Part I in blue book #1 and Part II in #2. There is a total of 100 points with point assignments given in the instructions for each part. I. SHORT QUESTIONS : Give a concise but complete answer to each of the following 4 questions for a total of 50 points. 1. [10] Consider the following regression of wages ( wage i ) on education ( edu i ): i i i i i i i i u edu DM edu edu DF DF wage + × + + × + + = ) ( ) ( 4 3 2 1 0 β , where DM i = 1 if person is male and 0 otherwise and DF i = 1 if person is female and 0 otherwise. a) Explain why this regression has a multicollinearity problem. Be specific to this problem. b) Assume you drop the variable ) ( i i edu DM × from the above regression. Interpret 2 . 2. [15] Consider the wage regression i i i i i i i i i u Z X Z D X D X Y + × + + × + + + = ) ( ) ( 5 4 3 2 1 0 where X is years of education, D is a dummy variable indicating college graduation and Z is family income level. a) How would you test the hypothesis that graduating from college has no effect on wages for all values of X ? b) Write an expression for the effect of a small increase in X, i.e., X Y Δ Δ , in terms of the coefficients and variables in the above wage regression model. c)
Background image of page 1

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

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

Page1 / 2

midterm2 - Department of Economics University of California...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online