midterm2

# midterm2 - Department of Economics University of California...

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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)

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## This note was uploaded on 09/28/2009 for the course ECON 140 taught by Professor Duncan during the Fall '08 term at Berkeley.

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midterm2 - Department of Economics University of California...

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