In An Economic Theory of Suicide, published in the Journal of Political Economy (1974), Hamermesh and...

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In "An Economic Theory of Suicide," published in the Journal of Political Economy (1974), Hamermesh and Soss state "When unemployment rises individuals' expectations of future incomes (and utilities) are revised downward. Holding real income of the employed constant, an increased number of people will believe future prospects to have diminished and will commit suicide." As a crude test of their hypothesis, we can estimate the equation suicide, Bo + B, unemployment; + U₁ where suicide is the number of suicides per 100,000 population in year i, unemployment, is the unemployment rate in year i, and u, is the error term. Data from 1968-1978 are given below: year 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 suicide rate per 100,000 10.7 11.1 11.5 11.7 12.0 12.0 12.1 12.7 12.5 13.3 12.5 unemployment rate 3.6 3.5 4.9 5.9 5.6 4.9 5.6 8.5 7.7 7.0 6.0 a. Compute the Ordinary Least Squares estimate of the parameters Bo and B₁ (you can use an excel spreadsheet and use the formulas for intercept and slope that we discussed in class for the case of a univariate regression model) b. How would these coefficients change if suicide rates were reported per 1000 population? c. Calculate the predicted suicide rates for each year. Calculate the estimated error for each year. d. What is the average estimated error? Why? e. The unemployment rate was 5.8 in 1979. Based on your estimates, what suicide rate would you have expected that year? In "An Economic Theory of Suicide," published in the Journal of Political Economy (1974), Hamermesh and Soss state "When unemployment rises individuals' expectations of future incomes (and utilities) are revised downward. Holding real income of the employed constant, an increased number of people will believe future prospects to have diminished and will commit suicide." As a crude test of their hypothesis, we can estimate the equation suicide, Bo + B, unemployment; + U₁ where suicide is the number of suicides per 100,000 population in year i, unemployment, is the unemployment rate in year i, and u, is the error term. Data from 1968-1978 are given below: year 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 suicide rate per 100,000 10.7 11.1 11.5 11.7 12.0 12.0 12.1 12.7 12.5 13.3 12.5 unemployment rate 3.6 3.5 4.9 5.9 5.6 4.9 5.6 8.5 7.7 7.0 6.0 a. Compute the Ordinary Least Squares estimate of the parameters Bo and B₁ (you can use an excel spreadsheet and use the formulas for intercept and slope that we discussed in class for the case of a univariate regression model) b. How would these coefficients change if suicide rates were reported per 1000 population? c. Calculate the predicted suicide rates for each year. Calculate the estimated error for each year. d. What is the average estimated error? Why? e. The unemployment rate was 5.8 in 1979. Based on your estimates, what suicide rate would you have expected that year?

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