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Exercise 2: Wooldridge Book: Part I Computer Exercises

This document summarizes three exercises from Wooldridge's textbook on computer exercises: 1. Estimating a simple regression model of log salary on years as CEO using CEO compensation data. The results show each additional year as CEO increases salary by almost 1%. 2. Estimating a regression of minutes slept per week on minutes worked using time-use data. The results show each additional 2 hours worked decreases sleep by about 18 minutes. 3. Discussing whether a diminishing effect model or same effect model is more appropriate for the relationship between math pass rates and spending per student using school performance data. A diminishing effect is argued to be more realistic.

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DuaFetai
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613 views10 pages

Exercise 2: Wooldridge Book: Part I Computer Exercises

This document summarizes three exercises from Wooldridge's textbook on computer exercises: 1. Estimating a simple regression model of log salary on years as CEO using CEO compensation data. The results show each additional year as CEO increases salary by almost 1%. 2. Estimating a regression of minutes slept per week on minutes worked using time-use data. The results show each additional 2 hours worked decreases sleep by about 18 minutes. 3. Discussing whether a diminishing effect model or same effect model is more appropriate for the relationship between math pass rates and spending per student using school performance data. A diminishing effect is argued to be more realistic.

Uploaded by

DuaFetai
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Exercise 2

Worked by: Dua Fetai

Wooldridge Book: Part I Computer Exercises:


1. C2 (iii)
2. C3
3. C6 (i)

1. C2 (iii) Exercise:
The data set in CEOSAL2.RAW contains information on chief executive officers
for U.S. corporations. The variable salary is annual compensation, in thousands of
dollars,and ceoten is prior number of years as company CEO.
(iii) Estimate the simple regression model
log(salary) = b0 + b1ceoten + u,
and report your results in the usual form. What is the (approximate) predicted
percentage increase in salary given one more year as a CEO?
Exercise 2
Exercise 2

Solution:
So based on the requirements, we must regress the log salary, the number of years
in the company as a CEO and the age!
The (approximate) predicted percentage increase in salary given one more year as
a CEO is:
The estimated equation is:
Log(salary) = 6.51 + 0.0097ceoten
N = 177, R² = 0.013
We obtain the approximate percentage change in salary given ∆ceoten = 1 by
multiplying the coefficient on ceoten by 100, 100(.0097) = .97%. Therefore, one
more year as CEO is predicted to increase salary by almost 1%.
9
8
log(salary)
7
6
Exercise 2

And this is the Scatter Graph that shows the number of years as CEO with the
company and the salary!

2. C3 Exercise:
Use the data in SLEEP75.RAW from Biddle and Hamermesh (1990) to study
whetherthere is a tradeoff between the time spent sleeping per week and the time
spent in paidwork. We could use either variable as the dependent variable. For
concreteness, estimatethe model
sleep + b0 + b1totwrk + u
where sleep is minutes spent sleeping at night per week and totwrk is total
minutesworked during the week.
(i) Report your results in equation form along with the number of observations
and R2. What does the intercept in this equation mean?
(ii) If totwrk increases by 2 hours, by how much is sleep estimated to fall? Do
youfind this to be a large effect?
Exercise 2

Solution:
Exercise 2

Solution (i):
The estimated equation is:
Sleep = 3568.4 – 0.151totwork
N = 706, R² = 0.103
Where sleepis minutes spent sleeping at night per week and totwrk is total minutes
workedduring the week.
The intercept implies that the estimated amount of sleep per week for someone
who does not work is 3,586.4 minutes, or about 59.77 hours. This comes to about
8.5 hours per night.
Solution (ii):
If someone works two more hours per week then ∆totwrk = 120 (because totwrk is
measured in minutes), and so sleep∆= -0.151(120) = -18.12 minutes. This is only a
few minutes a night. If someone were to work one more hour on each of five
working days, sleep∆= -0.151(300) = -45.3 minutes, or about five minutes a night.
Exercise 2

5000 4000
mins sleep at night, per wk
3000

This is the Scatter plot which defines the minutes sleep at night per week and
2000

minutes worked per week!

3. Exercise C6 (i):
We used the data in MEAP93.RAW for Example 2.12. Now we want to explore
1000

therelationship between the math pass rate (math10) and spending per student
(expend).
(i) Do you think each additional dollar spent has the same effect on the pass rate,
0 effect seem more appropriate? Explain.
ordoes a diminishing 2000 4
mins worked per w
Solution:
Exercise 2

The diminishing effect seems more appropriate here since every dollar spent in
education might have a return of fewer results. Also, the dollars invested at the
beginning will have a larger effect than the investment made later in the future.
In the population model:
Math10 = B0+ B1log (expend) + u,

Argue that B1/10 is the percentage point change in math10 given a 10% increase in
expend.
As seen from the above equation, B1 is a log, notated in a percentage form. Also,
math10 is also given in a percentage form, though it is not in a log functional form.
If we make a percentage point change in math10 with a 10% increase in expend, it
would be like having a log-log model; and, a 10% increase would be the same as
multiplying B1 by 10/100.
Exercise 2
Exercise 2

The estimated equation is:


Math10 = -69.34+ 11.16 log (expend) + u
N (sample size) = 408, R² = 0.0297
Below, I have uploaded the Scatter plot, showing the percentage of students
passing MEAP math in regression of how much that have expended!
80
perc studs passing MEAP math
20 040 60

8 8.2 8.4
log of expe

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