Questions and Answers of Essentials Of Econometrics

Consider the hypothetical income and spending data in Table 9.14.a. Identify any important differences in the patterns in these data compared to the data in Table 9.3.b. Estimate the simple
Use the data in Exercise 9.37 to answer these questions:a. Estimate the simple regression model with spending as the dependent variable and income as the explanatory variable.b. Estimate the equation
Table 9.15 shows U.S. data for C = real per capita consumption and Y = real per capita disposable personal income.a. Draw a scatter diagram.b. Estimate the consumption function C = α + βY + ε.c.
Use the data in the Exercise 9.39 to calculate the annual change in income and consumption, for example, in 1961 Y − Y−1 = 11.05 − 10.86 = 0.19.a. Draw a scatter diagram using these annual
Use the data in Exercise 9.39 to calculate the annual percentage change in income and consumption, for example, in 1961a. Draw a scatter diagram using these annual percentage changes.b. Estimate the
Explain why you either agree or disagree with this reasoning: “You can always identify an outlier in a regression model by looking at the residuals because an outlier has a large residual.” Draw
A stock portfolio consisting of the 10 companies identified by Fortune magazine each year as America’s most admired companies was compared to the overall U.S. stock market [24]. A least squares
Two portfolios were followed: one portfolio consisting of stocks that were deleted from the Dow Jones Industrial Average, the other portfolio consisting of stocks that replaced them [25]. Whenever a
Answer this question that was given to graduate students in psychology, which described the professor’s experience when he advised the Israeli air force:The instructors in a flight school adopted a
Use these data on the average weight in pounds of U.S. men who are 68 inches tall to estimate the equation Y = α + βX + ε. Plot the residuals and identify a pattern. Age (X) 20 30 40 50 60 70
In educational testing, a student’s ability is defined as this student’s average score on a large number of tests that are similar with respect to subject matter and difficulty.A student’s
The manager of a fleet of identical trucks used monthly data to estimate this model:where Y is gallons of fuel consumed (average value 71,000); X1 is miles traveled (average value 80,000); and X2 is
Data collected by a county agricultural agency were used to estimate this model:where Y is corn yield (bushels per acre, average value 90); X1 is fertilizer (pounds per acre, average value 100); and
The following equation was used to predict the first-year grade point average (GPA)for students enrolling at a highly selective liberal arts college:where Y is the student’s first-year college GPA
A study found that with simple regression equations, the increase in a human baby’s length during the first 3 months of life is negatively correlated with the baby’s length at birth and
An economist believes that housing construction depends (positively) on household income and (negatively) on interest rates. Having read only the chapter on simple regression, he regresses housing
An economist believes that the percentage of the popular vote received by the incumbent party’s candidate for president depends (negatively) on the unemployment rate and (negatively) on the rate of
An auto dealer claims that the resale value P of a 2005 Toyota Camry LE sedan depends on the number of miles M that it has been driven and whether it has an automatic or five-speed manual
Use Table 10.2’s 2009 prices of 2005 Camry LE sedans in excellent condition to estimate the equation P = α+β1D+β2M +β3DM +ε, where P = price, M = mileage, and D = 0 if the car has a five-speed
A study [5] of the housing market in Fishers, Indiana, looked at 15 matched pairs of houses that were sold or rented in 2005. Table 10.3 shows the sale price for each house, the size of the house
A study [6] of the housing market in Mission Viejo, California, looked at 15 matched pairs of houses that were sold or rented in 2005. Table 10.4 shows the sale price for each house, the size of the
Here are two regressions, one using annual data for 1980–1989, the other for 1970–1989. Make an educated guess about which is which and explain your reasoning.where C = consumption spending, Y =
Fill in the missing numbers in this computer output:a. Is the estimated coefficient of X1 statistically significant at the 5 percent level?b. What is the predicted value of Y when X1 = 4,000 and X2 =
Use these numbers to fill in the blanks in this computer output: 0.01, 0.03, 0.14, 0.26, 1.95, and 2.69. Explan. Var. Coefficient Std. Error t Value P Value Constant 5.80 20.48 0.28 0.39 X 0.51 X2
A linear regression looked at the relationship between the dollar prices P of 45 used 2001 Audi A4 2.8L sedans with manual transmission and the number of miles M the cars have been driven. A least
In American college football, Rivals.com constructs a widely followed index for rating colleges based on the high school players they recruit and Jeff Sagarin constructs a highly regarded system for
U.S. stock prices nearly doubled between 1980 and 1986. Was this a speculative bubble, based on nothing more than greed and wishful dreams, or can these higher prices be explained by changes in the
(continuation) We will use the model you estimated in question c of the preceding exercise to explain the sharp increase in stock prices in 1985 and 1986.a. Stock prices increased by 42.78 in 1985.
A random sample of 30 college students yielded data on Y = grade in an introductory college chemistry course (four-point scale), X1 = high school GPA (four-point scale), and X2 = SAT score (2400
A study of a microfinance program in South India estimated the following least squares regression:where Y = monthly family income, X1 = years in the microfinance loan program, and X2 = total amount
A dean claims that the salaries of humanities professors Y are determined solely by the number of years of teaching experience X. To see if there is a statistically significant difference in the
In March 1973, the world’s industrialized nations switched from fixed to floating exchange rates. To investigate the effects on international trade, a multiple regression equation was estimated
On average, men are taller than women and therefore take longer strides. One way to adjust for this height difference in comparing men’s and women’s track records is to divide the distance run by
Positively correlated residuals often occur when models are estimated using economic time series data. The residuals for the consumption function estimated in this chapter turn out to be positively
Use the data in Table 10.1 to answer these questions:a. Estimate the equation C = α + βX + ε, where C is spending and X is the year.Use your estimates to calculate predicted spending each year,
A researcher used data on these three variables for 60 universities randomly selected from the 229 national universities in U.S. News & World Report’s rankings of U.S. colleges and
Sales data for single-family houses in a Dallas suburb were used to estimate the following regression equation:where P = sale price, S = square feet of living area, G = garage square feet, A = age of
A survey of 100 English professors obtained data on their salaries and four explanatory variables: S = salary (thousands of dollars); B = number of published books; A = number of articles published
Table 10.9 shows data on state educational spending per pupil (E), percentage of high school seniors taking the SAT (S), and mean reading SAT score (R).a. Estimate the equation R = α + βE + ε.b.
A researcher was interested in how a movie’s box office revenue is affected by the audience suitability rating assigned by the Motion Picture Association of America(MPAA) and the quality of the
Data from a random sample of 100 college students were used to estimate the following multiple regression equation:where Y is the student’s height (inches), X1 is a dummy variable equal to 1 if the
Least squares were used to estimate the relationship between miles per gallon M, engine size S (liters), and the weights W (pounds) of 436 automobiles:The t values are in brackets.a. Does the value
Data for 100 college students were used to estimate this multiple regression equation:Y = −0.752 + 0.470F + 0.507M + 0.047A + 4.330D, where Y = height of student(inches), F = height of student’s
A survey of 47 sophomores investigated the effect of studying and extracurricular activities on grades:where Y = grade point average on a four point scale; X = average hours per week spent studying;
A study collected data on the 15 best-selling fiction and 15 best-selling nonfiction hardcover books (according to the New York Times bestseller list): Y = price, X1 =number of pages, and X2 =
A random sample of 30 new hardcover textbooks at a college bookstore was used to estimate the following multiple regression equation:where Y is the book’s price (in dollars), X is the number of
A researcher commented on this estimated equation: “Multicollinearity could be a factor as indicated by the very high standard error and the small t value.”( ): standard errors [ ]: t valuesa. In
Financial theory says that stock prices are negatively related to the unemployment rate and interest rates. The following equation was estimated using U.S. data on the S&P index of stock prices
Exercises 8.41 and 8.42 give height and weight data for 18- to 24-year-old U.S. men and women. Use these data to estimate the equationwhere Y = weight, X = height, and D = 0 if male, 1 if female.a.
Exercise 8.44 shows the results of separate regressions for foreign-born and California born mother-daughter pairs. Predict the estimated coefficients if this regression is run, using all 10,619
What difference would it make in Exercise 10.42 if we set D = 0 if the mother is foreign born and D = 1 if the mother is California born? How would you choose between these two
Data for the top 100 money winners on the Professional Golf Association (PGA) tour were used to estimate the following equation:where Y = dollars won on the PGA tour; D = average length of drives
Is the multicollinearity problem a characteristic of the population or the sample?For example, if you are trying to estimate the effect of the unemployment rate and interest rates on stock prices, do
In an IBM antitrust case, an economist, Franklin Fisher, estimated multiple regression equations predicting computer prices based on memory, speed, and other characteristics:Despite the fact that
College dining halls use attendance data to predict the number of diners at each meal. Daily weekday lunch data for 11 weeks were used to estimate the following regression equation:where Y = number
Table 10.10 shows hypothetical abilities and test scores. These 20 students have abilities ranging from 75 to 95, which we assume to be constant between third and fourth grade. For the four students
Use the data in Exercise 10.48:a. Estimate the simple linear regression model where ability is the dependent variable and third grade score is the explanatory variable.b. Estimate the simple linear
Use the data in Exercise 10.48:a. Estimate the simple linear regression model where ability is the dependent variable and third grade score is the explanatory variable.b. Use the equation you
Okun’s law says that changes in the unemployment rate are related to the percentage change in output. Suppose that this relationship is described by the equation U = 1.3 − 0.4Y, where U is the
The Fed’s stock valuation model says that the earnings/price ratio E/P is related to the interest rate R on 10-year Treasury bonds. Suppose that this relationship is described by the equation E/P =
Suppose that Okun’s law in Exercise 11.1 is the quadratic equation U = 1.4 − 0.6Y + 0.02Y2.a. What is the change in the unemployment rate when real GDP is constant?b. What is the slope of the
Suppose that the stock valuation model in Exercise 11.2 is a quadratic equation E/P = 1:5+0:7R+0:005R2.a. What is the earnings/price ratio when the interest rate is 0?b. What is the slope of the line
You want to write down a simple linear model relating college grade point average (GPA) to SAT scores.a. Which variable is the dependent variable?b. Do you expect the slope to be positive, negative,
You want to write down a simple linear model relating miles per gallon (MPG) to car weight.a. Which variable is the dependent variable?b. Do you expect the slope to be positive, negative, or 0?c. How
You want to write down a simple linear model relating used car prices to the number of miles the car has been driven.a. Which variable is the dependent variable?b. Do you expect the slope to be
Suppose that cigarette sales in the United States between 1910 and 2010 are described by the equation S = 800 + 164t − 1.4t2, where S is per capita sales and t = 0 in 1910, t = 1 in 1911, and so
Suppose that cigarette sales in the United States between 1910 and 2010 are described by the equation S = 130 + 18t − 0.12t2, where S is total sales (in billions) and t = 0 in 1910, t = 1 in 1911,
Suppose consumption C is related to income Y by the equation C = 10 + 0.9Y − 0.02Y2.a. Where does this equation intersect the vertical axis?b. What is the slope of the line at Y = 0?c. Does the
Suppose that labor supply L is related to wages W by the equation L = 1.2 + 3.5W+0.01W2.a. Where does the equation intersect the vertical axis?b. What is the slope of the line at W= 0?c. Does the
In the quadratic model Y = α + β1X + β2X2, which parameter determinesa. The slope of the equation at X = 0?b. Whether the slope of the equation increases or decreases as X increases?
A firm has this cubic cost function:where Q is output (the number of items produced) and C is the total cost of producing these items. The marginal cost MC is a quadratic function:a. What is the
A firm has this cost function:where Q is output (the number of items produced) and C is the total cost of producing these items. The marginal cost MC isa. What is the marginal cost at Q = 0?b. At Q =
Use the equations in Exercise 11.13 to make rough sketches of cost and marginal cost as functions of output Q.Exercise 11.13A firm has this cubic cost function:where Q is output (the number of items
Use the equations in Exercise 11.14 to make rough sketches of cost and marginal cost as functions of output Q.Exercise 11.14A firm has this cost function:where Q is output (the number of items
Suppose that the relationship between hard drive prices P and size G (in gigabytes) is P = 490 + 0.46G in 2006 and P = 505 + 0.24G in 2007.a. Which equation intersects the vertical axis at a higher
You are considering using a linear equation to model how egg demand D is related to the price P: D = α + βP.a. Do you expect the value of the parameter β to be positive, negative, or 0?Explain.b.
You are considering using a linear equation to model how home prices P are related to home construction costs C: P = α + βC.a. Do you expect the value of the parameter β to be positive, negative,
You are considering using a quadratic equation to model how the supply of wheat S is related to the price P: S = α + β1P + β2P2.a. Do you expect the value of the parameter β1 to be positive,
You are considering using a quadratic equation to model how the number of hours a week spent studying S is related to the dollar value of a prize P given to students with 4.0 grade point averages: S
You are considering using a quadratic equation to model how cost C of raising a family is related to the number of children in the family N: C = α + β1N + β2N2.a. Do you expect the value of the
Consider this Cobb-Douglas production function: Q = 100K0.3Y0.7. What is the value of Q if K = 50 and L = 100? What is the (approximate) percentage increase in Q if both K and L increase by 10
Consider the Cobb-Douglas production function Q = 100K0.4L0.6. What is the value of Q if K = 100 and L = 50? What is the (approximate) percentage increase in Q if both K and L increase by 10 percent,
Consider this equation for the demand for money: M= 250R−0.5L0.8, where M is the amount of money demanded, R is an interest rate, and Y is income. What is the elasticity of money demand with
Consider this equation for the demand for orange juice: D = 100Y0.7P−0.8, where D is demand, Y is income, and P is the price of orange juice. What is the elasticity of demand with respect to
Suppose that real income Y and the price level P are described by these exponential growth equations:a. What is the continuously compounded rate of growth of real income Y?b. What is the continuously
Suppose that nominal income Y and the price level P are described by these exponential growth equations:a. What is the continuously compounded rate of growth of nominal income Y?b. What is the
Suppose that income Y and population P are described by these exponential growth equations:a. What is the continuously compounded rate of growth of income Y?b. What is the continuously compounded
Suppose that productivity q and labor L are described by these exponential growth equations:a. What is the continuously compounded rate of growth of productivity q?b. What is the continuously
In 1870, real per capita GDP was $1,800 in England and $1,400 in the United States(30 percent higher in England). In 1970, real per capita GDP was $7,000 in England and $11,000 in the United States
U.S. real GDP was $1,643.2 billion in 1948 and $11,652.8 billion in 2008. The U.S. population was 146.6 million in 1948 and 304.5 million in 2008.a. What was the annual growth rate of real GDP over
The cubic square feet of marketable timber from a certain species of pine tree is related to the age of the tree by this equation:where F is the cubic footage and t is the tree’s age, in years.
Using data for 1901 through 1999, annual batting averages (BAs) were tabulated for all Major League Baseball (MLB) players for each season in which the player had at least 50 times at bat. For each
Using data for 1901 through 1999, annual earned run averages (ERAs) were tabulated for all Major League Baseball (MLB) pitchers for each season in which the player pitched at least 25 innings. For
A firm’s production is characterized by this Cobb-Douglas production function:Q = 12K0.4L0.6.a. If capital K increases by 5 percent, what is the approximate percentage change in output Q?b. If
The following variables might appear in a macroeconomic growth model: Y = real GDP; M= money supply; P = price level; and L = labor supply. Suppose that the continuously compounded rates of growth
Consider a firm whose assets and earnings at time t are described by these equations:a. What is the value of assets at time t = 0?b. What is the percentage rate of growth of assets?c. What is the
When you graduate from college, your annual salary will be Y0.a. Write down an equation for determining your annual salary t years after graduation if your salary grows at a continuously compounded
In the cobweb model of farm output, the demand D for a crop depends on the current price P, but the supply S depends on the price the previous period because crops must be planted before they can be
In an inflation-augmented Phillips curve, the rate of inflation P depends on the unemployment rate U and the anticipated rate of inflation A, which in turn depends on the rate of inflation the
Consider the following model of wage adjustment in the labor market:where We is the equilibrium wage rate, and λ is a positive parameter. If λ = 0.6, is the model monotonically stable, cyclically

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