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Econ107 Assignment 1 Answer Key: Question 1 (50 Marks)

1. The key coefficients and statistics from a linear regression model are summarized. β1 represents the change in the dependent variable Y for a one unit change in the independent variable X. β0 is the intercept or average value of Y when X is 0. The coefficient of determination r2 indicates that 38.5% of the variation in Y is explained by the regression model. 2. Changes made to the dependent or independent variables in the regression model are summarized. Adding a constant to Y changes the intercept β0 but not the slope β1. Adding a constant to X changes the intercept β0 and slope β1. 3. For a regression with no variation in the independent variable X, the model is invalid

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7K views4 pages

Econ107 Assignment 1 Answer Key: Question 1 (50 Marks)

1. The key coefficients and statistics from a linear regression model are summarized. β1 represents the change in the dependent variable Y for a one unit change in the independent variable X. β0 is the intercept or average value of Y when X is 0. The coefficient of determination r2 indicates that 38.5% of the variation in Y is explained by the regression model. 2. Changes made to the dependent or independent variables in the regression model are summarized. Adding a constant to Y changes the intercept β0 but not the slope β1. Adding a constant to X changes the intercept β0 and slope β1. 3. For a regression with no variation in the independent variable X, the model is invalid

Uploaded by

Ives Lee
Copyright
© © All Rights Reserved
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ECON107 ASSIGNMENT 1

Answer Key
Question 1 (50 marks)

1. X t 2 = 32+22+12+(-1)2+02 = 15

X t Y t = (5)(3)+(2)(2)+(3)(1)+(2)(-1)+(-2)(0) = 20

X t = 3+2+1+(-1)+0 = 5

Y t = 5+2+3+2+(-2) = 10

= =1
5


= =2
5

2. 1 = n 2 = (5)(20)(5)(10) = 1

n ( )2 (5)(15)(52 )
R

0 =
1 . = 1

3. 5
Yt
4

2
(1,2)

0
-2 0 2 4
Xt
-1

-2
4. 1 : An unit increase in X leads to an average of 1 unit
increase in Y

0 : an average value of Y when X is 0.

5. See above.
6. 5=1 = 5=1( )
0
= 5=1( 1 . )
= 1+(-1)+1+2+(-3) =0

5=1( )2
Standard error of estimate, =
2

12 +(1)2 +12 +22 +(3)2


=
52

= 2.309

Coefficient of determination, r2 =

5 ( )2
= =1
5 2
=1( )
10
=
26

= 0.385

38.5% of the total variation in Y t is explained by the regression


model (or by X).
7. H 0 : 1 =0
H 1 : 1 0

1 1 1 1 ) 2
(

t= 1 ) =
~ t(n-k-1) ,
(



1 ) =
where ( = 0.7303. So t=1.3693
2

Reject H 0 if |T| > t 0.05 = 2.35336


Do not reject H 0

Question 2 (20 marks)

1. 1 = n 2 = ( )( )

n ( ) 2 2
( )
R

1 = ( )(+1(+1))
Add 1 to the dependent variable: new 2 ( )

( )( )
=
( )2

1 .
There is no change in
0 =
1 .

0 = + 1
Add 1 to the dependent variable: new 1 .

0 will increase by 1 unit.


1 = n 2 = ( )( )
2.
n ( )2 2
( )
R

( +1(+1))( )
1 =
Add 1 to the independent variable: new
( +1(+1))2

( )( )
=
( )2

1 .
There is no change in

0 =
1 .

0 =
Add 1 to the independent variable: new 1 ( + 1)

1 .
= 1

0 will increase by
1 unit.
Question 3 (30 marks)

( )( )
1 =

( )2
1 is then
Since there is no variation in X, ( )2 = 0.
undefined. As a result, residuals are not defined. So are RSS and
ESS. Therefore, r2 is naturally undefined as well.

The person is not justified as the regression model is not valid.

If observations were lined up at 45 from origin, =

1 = 2


= 2 =1


R2 =

)2
(
= ( 2
)

0 +
( 1 . )2
= 0 =0 as intercept is at origin)
(
( )2

( )2
= ( )2

( )2
= ( 2
)

=1

Regression line will be a perfect fit.

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