2009 Midterm Exam 2

2009 Midterm Exam 2 - Midterm Exam 2 Econ 360 - Spring 2009...

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Midterm Exam 2 Econ 360 - Spring 2009 Professor Mumford Wednesday, April 8, 2009 mumford@purdue.edu RAWL 2077 3:00 – 4:15pm 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 one hour and ten minutes to complete the exam. Good luck! 1. (12 points) Define or explain the following terms: a. (3 points) proxy variable b. (3 points) instrumental variable c. (3 points) heteroskedasticity-robust standard error d. (3 points) classical measurement error attenuation bias
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2. (18 Points) a. (9 points) In the multiple regression model, derive the OLS estimator as the solution to the problem of minimizing the sum of squared residuals min ˆ β u 0 ˆ u ) . b. (9 points) Under E.1 - E.3, show that the OLS estimator in the multiple regression model is unbiased.
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3. (15 Points) For each test, explain (1) what the test is designed to detect and (2) how to perform the test. a. (5 points) Chow Test b. (5 points) Breusch-Pagan Test c. (5 points) Regression Specification Error Test (RESET)
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4. (16 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 P -value study 0.20 0.10 0.05 ACT 0.10 0.05 0.05 R 2 = 0 . 90 SSR = 35 a. (4 points) Calculate the t -statistic for the study coefficient, assuming a null hypothesis that time spent studying has no effect on GPA. b. (4 points) Interpret the P -value for the ACT coefficient. c. (4 points) Calculate the Total Sum of Squares (SST) for the model. Note that the sum
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2009 Midterm Exam 2 - Midterm Exam 2 Econ 360 - Spring 2009...

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