Exam 1 - Solutions - PAM 3100: First Preliminary Exam...

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PAM 3100: First Preliminary Exam (09/27/2010) In-Class Professor Lovenheim Instructions PLEASE READ CAREFULLY before starting. This test has a total of 100 points and has a total of 3 questions with sub-parts. The amount each sub-part is worth is listed next to each question. There are a total of 18 questions. You have 75 minutes for the exam. We will take off points if you use generic variables, such as X and Y, without first defining them. You either should use variable names when answering questions or state clearly what generic variables stand for. If I define a variable in the problem setup, such as U in Question 1, you can use this variable without defining it. You are allowed to use a non-programmable calculator. If you use a programmable calculator, your exam will be taken and you will not receive credit. If you have questions about a calculator, ask before the exam starts . Cell phones and PDAs are not allowed to be out during the exam. Shut off cell phones and put them away. If we see a cell phone out during the exam, your exam will be taken and you will not receive credit. Show your work! No credit will be given for correct answers with no justification. Please try to make sure that your handwriting is legible. [I know, the hypocrisy is hilarious.] In response questions, be precise but brief . If a correct reply is hidden among wrong, or irrelevant, arguments, you will not get full credit. We will grade only what is written in your blue books. Ask if you need a second book. If you cannot solve one subquestion do not skip the rest of the question. Attempt to solve each subquestion. When the exam is finished, hand in the bluebook and the exam paper . I will post the exam with answers later. Please do not turn this page over until you are instructed to do so! 1
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1 (50 points) The Obama administration claims that the stimulus had a positive effect on state economies. This notion is hardly shared by all, however. The Tea Party has hired you to investigate this claim by providing you with state-level data (including DC) from 2010 on state per-capita income (INCOME) in dollars and federal stimulus money per-capita (STIM) in dollars received. They ask you to estimate the following model: INCOME = β 0 + β 1 STIM + U . The data can be summarized as follows: INCOME =$35,000 STIM = $500 n i =1 ( INCOME i - INCOME ) 2 = 500 , 000 n i =1 ( STIM i - STIM ) 2 =15,000 n i =1 [( INCOME i - INCOME ) * ( STIM i - STIM )] = 15 N=51 where INCOME is average per-capita income across states (in dollars) and STIM is average per-capita stimulus money received across states (in dollars). (a) Estimate the slope and intercept parameters from a regression of INCOME on STIM (i.e., what is ˆ β 0 and ˆ β 1 ). Interpret both coefficient estimates in words. 10 points ˆ β 1 = 15 15 , 000 = 0 . 001 – A $1 increase in stimulus per capita is associated with a $0.001 increase in income per capita, on average. ˆ
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This note was uploaded on 01/30/2012 for the course PAM 3100 at Cornell University (Engineering School).

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Exam 1 - Solutions - PAM 3100: First Preliminary Exam...

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