ProblemSet7 Answers

ProblemSet7 Answers - Professor Mumford [email protected]

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Professor Mumford Econ 360 - Fall 2010 [email protected] Problem Set 7 Answers Multiple Choice Questions (12 points) The following model allows the return to education to depend upon the total amount of both parent’s education, pareduc : log ( wage ) = β 0 + β 1 educ + β 2 educ · pareduc + β 3 exper + β 4 tenure + u. (1) Next, consider altering model (1) above by adding the variable pareduc by itself to the model: log ( wage ) = β 0 + β 1 educ + β 2 educ · pareduc + β 3 exper + β 4 tenure + β 5 pareduc + u. (2) 1. (4 points) What is the return to an additional year of education in model (1)? (a) β 0 + β 1 educ + β 2 educ · pareduc + β 3 exper + β 4 tenure (b) β 1 + 2 β 2 pareduc (c) β 1 + β 2 pareduc (d) β 1 2. (4 points) In model (1), what does β 2 > 0 imply? (a) The return to education for an individual is greater for those whose parents have more education. (b) The return to education for an individual is greater for those whose parents have less education. (c) On average, individuals whose parents have more education gain more education than individuals whose parents have less education. (d) On average, individuals whose parents have more education gain less education than individuals whose parents have less education. 3. (4 points) What is the return to an additional year of parent education in model (2)? (a) β 0 + β 1 educ + β 2 educ · pareduc + β 3 exper + β 4 tenure + β 5 pareduc (b) β 5 + β 2 educ (c) β 1 + β 2 pareduc (d) β 5 1
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Long Answer Questions (88 points) 4. Alcohol and College GPA (a) We would want to include SAT and hsGPA as controls, as these measure student abilities and motivation. Drinking behavior in college could be correlated with one’s performance in high school and on standardized tests. Other factors, such as family background, would also be good controls. (b) If we include attend , then we are measuring the eFect of alcohol consumption on college GPA, holding attendance ±xed. We interpret the estimate of β alcohol as being those eFects on colGPA that are not due to attending class (for example, we could be measuring the eFect that drinking alcohol has on study time). How- ever, if we do not include attend then we are measuring the total eFect of alcohol consumption on college GPA. Attendance is likely to be an important mechanism through which drink aFects performance, so not including attend as an explana- tory variable allows us to interpret the estimate of β alcohol as being the total eFect on . (c) Because attendance is likely to be an important mechanism through which drink- ing aFects performance, we probably do not want to hold it ±xed in the analysis.
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ProblemSet7 Answers - Professor Mumford [email protected]

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