EC351_F10_Test1_Answers

EC351_F10_Test1_Answers - Name: _ EC 351 001: Econometrics...

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1 Name: _____________________________________________ EC 351 – 001: Econometrics I TEST 1 September 16, 2010 Instructions: Provide all answers on this exam paper. You must show all work to receive credit. You are allowed to use your notes on this exam, provided that they are written in your own handwriting. Make your final answer clear in order to receive full credit. Allocate your time appropriately across all questions and make sure to finish within the time limit of 75 minutes. Question values are shown beside each question as a percentage of the total exam grade.
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2 1. For-profit companies spend a lot of time trying to understand two variables: Revenue and Cost. Suppose that each is normally distributed with N (5,100). Economists define Profit as Revenue minus Cost. (Hint: To apply the appropriate formula, following the notation in your book, use 1 and 1.) ab  a. (4%) What is the distribution of the Profit variable if Revenue and Cost are independently distributed? Answer: E(Profit) = E(Revenue) – E(Cost) = 5 – 5 = 0 Var(Profit) = Var(Revenue) + Var(Cost) = 100 + 100 = 200 N (0,200) b. (8%) What is the distribution of the Profit variable if the correlation between Revenue and Cost is 0.25? Answer: , , , (,) 0.25 100 * 100 0.25*10*10 25 RC Corr R C  E(Profit) = E(Revenue) – E(Cost) = 5 – 5 = 0 Var(Profit) = Var(Revenue) + Var(Cost) - 2*Cov(R,C) = 100 + 100 - 2*25 = 150 N (0,150)
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3 2. You are told that the average literacy rate for women across the world is 80% and you want to test whether this claim is correct or not. a. (5%) In a sample of 54 countries, you find that the average female literacy rate is 82% with a standard deviation of 15%. What is the p-value and what do you conclude at the 5% significance level?
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EC351_F10_Test1_Answers - Name: _ EC 351 001: Econometrics...

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