Exam 1 - Solutions

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

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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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