39 - Chapter 3 Exercise Solutions Principles of...

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Chapter 3, Exercise Solutions, Principles of Econometrics, 3e 39 EXERCISE 3.5 (a) The linear relationship between life insurance and income is estimated as n () 6.8550 3.8802 (se) 7.3835 0.1121 INSURANCE INCOME =+ Figure xr3.5 Fitted regression line and mean (b) The relationship in part (a) indicates that, as income increases, the amount of life insurance increases, as is expected. If taken literally, the value of b1 = 6.8550 implies that if a family has no income, then they would purchase $6855 worth of insurance. However, given the lack of data in the region where 0 INCOME = , this value is not reliable. (i) If income increases by $1000, then an estimate of the resulting change in the amount of life insurance is $3880.20. (ii) The standard error of b 2 is 0.1121. To test a hypothesis about β 2 the test statistic is 22 2 2 ~ se N b t
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