ExamFinal2006_solutions - Introduction to Applied...

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Page 1 of 7 Introduction to Applied Econometrics National Graduate Institute for Policy Studies Associate Professor Wade Pfau Winter 2006 Final Examination – SUGGESTED SOLUTIONS March 24, 2006 10:30 AM – 12:00 PM Instructions: You will have 90 minutes to complete this exam. Your answers should go in this exam booklet. Write your answer in the space provided. You may also use the backside of the pages if you need more space. You should show your calculations, especially as a way to get partial credit if your final answer happens to be wrong. Do not violate any of the following rules: 1. No talking. You may ask me questions after getting my attention. Otherwise, you may not talk. 2. You may not use any notes or books (including dictionaries). You may only use a pen or pencil and a calculator. Everything else must be on the floor and out of sight. 3. You may not use scrap paper. Please write only in the exam booklet. 4. Keep your eyes focused on your own exam. Do not try to look at other students’ exams. The exam includes 35 possible points. Good Luck! Name: . Student ID: .
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Page 2 of 7 [2 points] 1 . Suppose you have a dataset for Y, X, and Z that includes 90 observations. You decide to estimate the following model: 0 1 2 3 1 4 2 5 3 t t t t t t t Y Z X X X X β β β β β β ε - - - = + + + + + + How many degrees of freedom will you have for this estimation? You wish to estimate 6 coefficients. Also, you must sacrifice 3 data observations in order to make the lagged X variable. Therefore, d.o.f. = 90 – 6- 3 = 81 . [9 points total] 2 . Suppose that you are studying the factors which explain a person’s salary. Your sample is drawn from workers between the ages of 15 and 90. You estimate the following regression: 2 ˆ 20000 500 2000 600 6 i i i i i Salary Educ Female Age Age = + - + - (1) where: Salary is measured in US dollars Educ is the number of years of education Female is a dummy variable equal to 1 for females, 0 otherwise Age is the person’s age (2 point) (a) What is the predicted salary of a 20 year old male with 10 years of education? 2 ˆ 20000 500(10) 2000(0) 600(20) 6(20) 25000 12000 2400 34,600 i Salary = + - + - = + - = (2 points) (b) Consider the Age variable. According to the estimated model, at what age do people earn maximum salaries? ˆ 600 2*6* 0 600 50 12 i Salary Age Age Age = - = = =
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Page 3 of 7 #2 continued from the previous page (5 points) (c) Consider the Educ variable. Suppose you decide to create three new dummy variables: Educ1 =1 for those with 0-12 years of education, 0 otherwise Educ2 =1 for those with 13-16 years of education, 0 otherwise
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