Unformatted text preview: ECON 414
SOLUTION TO HOMEWORK 5
4.4 (i) H0: β 3 = 0. H1: β 3 ≠ 0. (ii) Other things equal, a larger population increases the demand for rental housing, which should
increase rents. The demand for overall housing is higher when average income is higher, pushing
up the cost of housing, including rental rates.
(iii) The coefficient on log(pop) is an elasticity. A correct statement is that “a 10% increase in
population increases rent by .066(10) = .66%.”
(iv) With df = 64 – 4 = 60, the 1% critical value for a two-tailed test is 2.660. The t statistic is
about 3.29, which is well above the critical value. So β 3 is statistically different from zero at the
1% level. *Solution for the additional hw problem will be posted separately.* ...
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