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Unformatted text preview: Final Exam Econ 360  Fall 2007 Professor Mumford Tuesday, December 11, 2007 mumford@purdue.edu RAWL 1062 1:00 3:00pm YOUR NAME: Answer all questions clearly and legibly. Show all of your work in the space provided. Do not use additional sheets or write on the back of the page. Do not refer to your notes, the text book, or any other materials during the exam. There are 100 points possible. Maximum points for each question are noted in parentheses. You have two hours to complete the exam. Good luck! 1. (10 points) Define or explain the following terms: a. (2 points) instrumental variable b. (2 points) natural experiment c. (2 points) unit root process (an I(1) series) d. (2 points) proxy variable e. (2 points) autocorrelation 2. (14 points) The STATA output below is from a regression of the annual salary for NBA players (in thousands of dollars) on the average points scored per game. For each part, write a formula that can be used to calculate the circled value. You can write the formulas in either summation or matrix notation and can use y and X in place of variable names. a. (2 points) b. (2 points) c. (2 points) d. (2 points) e. (2 points) f. (2 points) g. (2 points) 3. (9 Points) a. (3 points) State assumption E.3 (zero conditional mean) and give an example where this assumption is violated. b. (4 points) State assumption E.4 (Homoskedasticity and No Serial Correlation) and give two examples where this assumption is violated. One should be an example where homoskedasticity is violated and the other should be an example where no serial correlation is violated. c. (2 points) Without assumption E.5 (normality), when are tstatistics valid? Explain. 4. (12 Points) Suppose you regressed the grade point averages of 100 college students on their hours of study per week ( study ) and ACT score ( ACT ). You are interested in which of these two variables is relatively more important in determining GPA, and since hours studied per week and ACT are measured in different units, you decide to estimate the model with standardized variables to get beta coefficients (also called standardized coefficients). The results of the estimation are as follows: beta standard Variable coefficient error Pvalue study 0.20 0.10 0.05 ACT 0.10 0.05 0.05 R 2 = 0 . 90 SSR = 35 a. (3 points) Calculate the tstatistic for the study coefficient, assuming a null hypothesis that the coefficient has no effect on GPA....
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