A company in Bulgaria is working with the local police force to develop an app to analyze the causes of crime in the region. The following regression model was fitted to 28 observations:

where
ŷ = Murder rate
x₁ = Current conviction rate
x₂ = Unemployment rate
x₃ = Fraction of young males

The numbers below the coefficients are the coefficient standard errors.
a. What will happen when autocorrelated errors appear in the model?
b. Construct an appropriate to determine whether the above model’s error terms are positively autocorrelated at 5% significance level.
c. Given your result in part b, explain the reasons for such a result and the solutions, if any, for it.
d. Suppose the sample size, n, increases to 40 and d = 1.19. What can be concluded from the same test used in part b?

Transcribed Image Text:

+0.35x₁ + 0.57x2 + 0.42x3 (0.036) (0.143) (0.175) ŷt = 0.79 + 0.79 d = 1.22