HW5_sol

HW5_sol - ECON 414 SOLUTION TO HOMEWORK 5 Spring 2011 4.4...

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Unformatted text preview: ECON 414 SOLUTION TO HOMEWORK 5 Spring 2011 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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