Jinkyu Ha
EEP 118
PS #5
11/16/10
Exercise 1
(a)
After policy
Before policy
Difference
High income
13.41
6.75
6.66
Low income
6.81
5.90
0.91
Difference
6.6
0.85
5.75
The difference of the mean duration of benefits between before and after the policy is highly statistically
significant for the highincome earners, based on pvalue of 0.0027, but is not significantly different for the
lowincome earners, based on pvalued of 0.3420.
(b)
Durat = β
0
+ β1highearn + β
2
afchnge + β
3
(afchnge* highearn) + u
Durat^ = 5.90 + 0.85highearn + 0.91afchnge + 5.75(afchnge*highearn)
 β
0
gives the average duration of benefits for lowincome earners before the policy change
 β
1
gives the difference in average duration of benefits between highincome and lowincome
earners before the policy change
 β
2
gives the difference in average duration of benefits before and after the policy change for the
lowincome earners

β
3
gives the difference in average duration of benefits before and after the policy change for high
income earners versus lowincome earners.
Based on pvalue of 0.577, we can conclude that both highincome and lowincome earners had the same
duration of benefits on average.
Highincome earners got significantly more benefits from the policy
change, based on pvalue of 0.009, but we cannot say that lowincome earners were affected by the policy
change, based on pvalue of 0.519.
With the policy change, highincome earners’ duration of benefits
became twice longer.
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 Spring '11
 elizabeth
 Statistics, Statistical significance, policy change, real spending, lowincome earners

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