Final Exam (Econ 301, Spring 2015)

S.ID / Name:
(Circle one) Graduate / undergraduate?

1. Solve two of the following questions. If you solve all three then I will only take two that are lower in
scores.

(a) (5 points) If you reject your null hypothesis at = 0:01, you reject it at = 0:05 as well. True, false,
or uncertain? Explain your answer very briey.
(b) (5 points) If you fail to reject H0 : 1 = 0 against HA : 1 6= 0 at = 0:01, it means the true value
of 1 is 0. True, false, or uncertain? Explain your answer very briey.
(c) (5 points) If your 95% condence interval for 1 includes 0, it means the true value of 1 is 0. True,
false, or uncertain? Explain your answer very briey.

2. This question is a modied version of the Q2 in the midterm exam. Suppose you have a set of ran-
domly sampled data f(yi ; xi ) ; i = 1; :::; ng, where xi is person is average amount of physical exercise
measured in a certain unit and yi is average monthly income measured in a certain unit. Assume
iid 2 2
yi jxi =s 0 + 1 s; for some 0, 1, and for all s. Use the following data. Your code =
mod f(3 + 10 last digit of your student ID); 7g. Make sure to use correct summary statistics. I
will give only 10 points for this part if your code is wrong.

1
P 1
P 1
P 1
P 1
P
n n i xi n i yi n i x2i n i yi2 n i xi yi R2
Use this if your code = 0 200 2:5 2:25 6:309 5:813 5:655 0:0198
Use this if your code = 1 300 2:0 3:0 4:007 9:5 6:007 0:0132
Use this if your code = 2 100 1:5 3:25 2:276 12:063 4:914 0:0392
Use this if your code = 3 300 1:0 2:0 1:007 4:5 2:007 0:0132
Use this if your code = 4 200 2:5 0:25 6:309 0:813 0:655 0:0198
Use this if your code = 5 100 0:5 0:0 0:265 1:5 0:029 0:0392
Use this if your code = 6 300 1:5 1:0 2:257 1:5 1:507 0:0132

(a) (20 points) Fill out the regression result. The ( ) is the standard error.

y^i = Do not ll this out. + xi

( Do not ll this out. ) ( )
R2 = given in the table; n = given in the table:

Can you conclude people who exercise more earn more? Use = 0:05:

Remark 1 The score given is: 12 if the ^ 1 was correctly calculated; 15 if the ^ 1 and its se
were correctly calculated; 17 if the ^ 1 and its se were correctly calculated and the hypotheses were
correctly formulate.

(b) (Bonus 10 points) Do you think you need to worry about the reverse causality problem with the
regression result? Why or why not? Be brief.

Remark 2 No base points for this problem.

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3. This question refers to Example 8.7. Here presented are several regression results for the following model

cigs i = 0 + 1 ln(cigpric i ) + 2 ln(income i ) (1)

2
+ 3 educ i + 4 educ i ln(income i ) + 5 age i + 6 age i

+ 7 White i + 8 restaurn i + ei ; (2)

E [ei jincome i ; cigpric i ; educ i ; age i ; White i ; restaurn i ] = 0:

The variables are: cigs - number of cigarettes smoked per day; income - annual income; cigpric - the
per-pack price of cigarettes (in cents); educ - years of schooling; age - measured in years; restaurn - a
binary indicator equal to unity if the person resides in a state with restaurant smoking restrictions; White
- 1 if white and 0 if nonwhite. All are OLS results. The u
^ is the residual from the <Reg 1>. Use = 0:05:

<Reg 1> <Reg 2>

cigs
Dept. = cigs Coef. (se) Dept. = p
h
Coef. (se)
ln(cigpric )
ln(cigpric) -1.382 5.777 p
h
-4.870 5.414
ln(incom e )
ln (income) 6.204 2.731 p
h
5.281 2.073
educ
educ 3.978 2.216 p
h
2.943 1.591
educ ln(incom e )
educ ln (income) -.462 .228 p
h
-.361 .167
age
age .789 .160 p
h
.745 .150
2
2 age
age -.009 .002 p
h
-.009 .002
Wp hite
White -.498 1.115 h
-.370 1.259
restaurn
restaurn -2.8876 1.457 p
h
-2.791 .943
Const. -52.545 34.49 p1 -28.006 26.749
h
n 807 n 807
2 2
R .0578 R .

<Reg 3> <Reg 4>

2
Dept. = u
^ Coef. (se) ^2
Dept. = ln u Coef. (se)
ln(cigpric) 69.207 159.4 ln(cigpric) .709 .648
ln (income) 48.434 19.343 ln (income) .568 .079
educ .917 4.561 educ -.064 .019
age .0006 .779 age -.013 .003
White 24.83 40.14 White .171 .163
restaurn -71.99 30.81 restaurn -.616 .125
Const. -591.0 667.6 Const. -2.854 2.716
n 807 n 807
R2 .016 R2 .1024
The h in <Reg 2> is dened as

hi = e(:709 ln(cigpric )+:568 ln(incom e ) :064educ :013age +:171W hite :616restaurn )

:

(a) (15 points) Suppose there are two groups of people who are equal except that one group (group A)
earn 5% more income than the other (group B). How much more (or less) do the group A smoke on

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 average compared to the group B?
(b) (20 points) Suppose there are two groups of people who are equal except that one group (group A)
were educated one year more than the other (group B). How much more (or less) do the group A
smoke on average compared to the group B?

Remark 3 Your answers for both (a) and (b) must be based on the result of the test for heteroskedas-
ticity. I gave at most 10 points for the part (a) and 15 points for the part (b) if your answers did not
present the conclusion from the BP test.

4. (15 points) Take the model in the question 1 in Quiz 3. If the assumption for the error terms is
2 2
ui j (univi ; IQi ; Industryi ) 0; (Industryi ) then what the (Industryi ) should look like? The
individual score for the Quiz 03 is

min fthis questions score,13g

team score for the Quiz 3question 1
13
+team score for the Quiz 3question 2.