BT22203

ECONOMETRIC
SEM 1 – 2021/2022

GROUP ASSIGNMENT 1
QUESTION 1
Ta b l e 1 g i v e s d a t a o n w e e k l y c o n s u m p t i o n e x p e n d i t u r e ( Y ) ( i n d o l l a r s ) a n d w e e k l y f a m i l y i n c o m e ( X )
(in dollars) for a population of 60 students.
Weekly income (X) Weekly consumption expenditure (Y)
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 X
90
102 55 107
60 65
110 Y
70 75
116 118 125
220 120 110 65 115 74 12080
70 85130 88 135 140
140 79 84 90 94 98
250 170 120 80 136 95 140
93 103 108144 113 145
115
190 102 107 110 116 118 125
270 220 135110 137 120 140
115 130 135152 140 157 160 162
290 250
270
137120
135
145 140
136
137 140
155
144
152
145
157
165 160 175
162
189
320 290 150137 152 155 175
145 165 175178 189 180 185 191
320 150 152 175 178 180 185 191
a. F o r e a c h i n c o m e l e v e l , c o m p u t e t h e m e a n c o n s u m p t i o n e x p en d i t u re E 𝑌 𝑋 𝑖 , t h a t i s , t h e c o n d i t i o n a l
expected value.
b. P l o t t h e s e d a t a i n a s c a t t e r g ra m w i t h i n c o m e o n t h e h o r i z o n t al a x i s a n d c o n s u m p t i on e x p e n d i t ur e o n
the vertical axis.
c. P l o t t h e c o n d i t i o n al m e a n s d e r i v e d i n p a r t ( a ) i n t h e s a m e s c a t t e r g ra m c r e a t e d i n p a r t ( b ) .
a. For each income level, compute the mean consumption expenditure 𝑬 𝒀 𝑿𝒊 , that is, the conditional
expected value.

𝑿𝒊 Y E 𝒀 𝑿𝒊

𝟓𝟓 + 𝟔𝟎 + 𝟔𝟓 + 𝟕𝟎 + 𝟕𝟓
90 55 60 65 70 75 = 𝟔𝟓
𝟓
120 65 70 74 80 85 88 77
140 79 84 X 90 94 98 Y 89
90 55 60 65 70 75
170 80 93 120 95 65103 70 108 74 113 80 11585 88 101
190 102 107 140
170
110 79
80
116 84
93
118 90
95
125 94
103
98
108 113 115
113
220 110 115 190 120 102130 107 135 110 140116 118 125 125
220 110 115 120 130 135 140
250 120 136 250 140 120144 136 145 140 144 145 137
270 135 137 140 152 157 160 162
270 135 137 290 140 137152 145 157 155 160 165 162175 189 149
290 137 145 320
155 150
165 152
175 189
175 178 180 185 191
161
320 150 152 175 178 180 185 191 173
2060 1190
b. Plot these data in a scattergram with income on the horizontal axis and consumption expenditure on the
vertical axis.

X Y
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 102 107 110 116 118 125
220 110 115 120 130 135 140
250 120 136 140 144 145
270 135 137 140 152 157 160 162
290 137 145 155 165 175 189
320 150 152 175 178 180 185 191
c. Plot the conditional means derived in part (a) in the same scattergram created in part (b).

X Y
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 102 107 110 116 118 125
220 110 115 120 130 135 140
250 120 136 140 144 145
270 135 137 140 152 157 160 162
290 137 145 155 165 175 189
320 150 152 175 178 180 185 191
Qu e s tion 2
F r om t h e d a ta given in Q ue st io n 1 , a r a n d o m sa m p le o f Y w a s t h e n d r a w n a g a in st e a ch X. T h e r e su lt
w as a s f o llo w s:

Y 77 80 98 115 102 115 145 157 155 191

X Y
X 90 120
90
120
140
55
65
170
60
70
190
65
74
220
70
80
75
85
25088 270 290 320
140 79 84 90 94 98
170 80 93 95 103 108 113 115
a. D r a w t h e scatter gr am w it h Y o n t h e ve r t ica l a xis a n d X o n t h e h o r izo n t a l a xis f r o m t h e r a n d o m
190
220
102
110
107
115
110
120
116
130
118
135
125
140
sa m p le collected. 250 120 136 140 144 145
270 135 137 140 152 157 160 162
b. Wh a t is the sample r eg r e ssio n f u n ct io n f o r t h is e xa m p le ? Sh o w a191
290
320
137
150
145
152
155
175
165
178
175
180
ll yo u r ca lcu la t io n s in a t a b le .
189
185
a. Draw the scattergram with Y on the vertical axis and X on the horizontal axis from the random sample
collected.

X Y
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 102 107 110 116 118 125
220 110 115 120 130 135 140
250 120 136 140 144 145
270 135 137 140 152 157 160 162
290 137 145 155 165 175 189
320 150 152 175 178 180 185 191
b. What is the sample regression function for this example? Show all your calculations in a table .

𝑿𝒊 𝒀𝒊 ෍ 𝑿𝒊 𝒀𝒊 𝑿𝟐𝒊 𝒙𝒊 𝒚𝒊 𝒙𝟐𝒊 𝒚𝟐𝒊 ෍ 𝒙 𝒊 𝒚𝒊 𝑌෠𝑖 𝒆𝒊 𝒆𝟐𝒊 ෍ 𝒆𝒊 𝒙𝒊

90 77 6930 8100 -116 -46.5 13456 2162.25 5394 69.3054 7.6946 59.2064 692.5113
120 80 9600 14400 -86 -43.5 7396 1892.25 3741 83.3213 -3.3213 11.0308 -398.5520
140 98 13720 19600 -66 -25.5 4356 650.25 1683 92.6652 5.3348 28.4605 746.8778
170 115 19550 28900 -36 -8.5 1296 72.25 306 106.6810 8.3190 69.2058 1414.2308
190 102 19380 36100 -16 -21.5 256 462.25 344 116.0249 -14.0249 196.6975 -2664.7285
X Y
220 115 25300 48400 90 14 55 -8.5
60 65196 70 72.25 75 -119 130.0407 -15.0407 226.2234 -3308.9593
120 65 70 74 80 85 88
250 145 36250 62500140 44 79 21.5
84 1936
90 94 462.25
98 946 144.0566 0.9434 0.8901 235.8597
170 80 93 95 103 108 113 115
270 157 42390 72900190 64102 33.5
107 4096 116 1122.25
110 118 2144
125 153.4005 3.5995 12.9567 971.8778
290 155 44950 84100220
250
84110
120
31.5
115
136
7056
120
140
130
144
992.25
135
145
2646
140
162.7443 -7.7443 59.9749 -2245.8597
320 191 61120 102400
270 114135 67.5
137 12996 152 4556.25
140 157 7695 162
160 176.7602 14.2398 202.7724 4556.7421
290 137 145 155 165 175 189
SUM 2060 1235 279190 477400
320 0 150 0
152 53040 178 12444.5
175 180 24780 191
185 1235 0 867.4186 0

σ 𝑋𝑖 2060 σ 𝑌𝑖 1235
𝑋ത = = = 206 ; 𝑌ത = = = 123.5
𝑛 10 𝑛 10
b. What is the sample regression function for this example? Show all your calculations in a table .

σ 𝒙 𝒊 𝒚𝒊 𝑏1 = 𝑌ത − 𝑏2 𝑋ത
𝑏2 =
σ 𝒙𝟐𝒊 = 123.5 − 0.4672 206
24780 = 27.2568
=
53040
= 0.4672

SRF: 𝑌෠𝑖 = 𝑏1 + 𝑏2 𝑋𝑖
෡ = 𝟐𝟕. 𝟐𝟓𝟔𝟖 + 𝟎. 𝟒𝟔𝟕𝟐𝑿
𝒀
Question 3. Refer to the sample regression function in Question 2 and find:

X Y
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 102 107 110 116 118 125
220 110 115 120 130 135 140
250 120 136 140 144 145
270 135 137 140 152 157 160 162
290 137 145 155 165 175 189
320 150 152 175 178 180 185 191
i. ෝ2
𝜎 ii. 𝜎ො
𝒆𝟐𝒊
ෝ𝟐 = ෍
𝝈 ෝ= 𝝈 ෝ𝟐
𝒏−𝟐 𝝈
867.4186 = 108.4273
= = 𝟏𝟎. 𝟒𝟏𝟐𝟖
10 − 2
= 𝟏𝟎𝟖. 𝟒𝟐𝟕𝟑
 X Y
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 102 107 110 116 118 125
220 110 115 120 130 135 140
250 120 136 140 144 145
270 135 137 140 152 157 160 162
iii. 𝑣 𝑎𝑟 𝑏 1 290 137 145 155 iv. 𝑠𝑒(𝑏 )
165 175 1 189

σ 𝑿𝟐𝒊 𝟐
320 150 152 175 178 180 185 191

𝒗𝒂𝒓 𝒃𝟏 = 𝝈 𝒔𝒆(𝒃𝟏 ) = 𝒗𝒂𝒓 𝒃𝟏

𝒏 σ 𝒙𝟐𝒊
477400 = 97.5927
= 108.4273
10(53040) = 𝟗. 𝟖𝟕𝟖𝟗
= 𝟗𝟕. 𝟓𝟗𝟐𝟕
 X Y
90 55 60 65 70 75
120 65 70 74 80 85 88
140 79 84 90 94 98
170 80 93 95 103 108 113 115
190 102 107 110 116 118 125
220 110 115 120 130 135 140
250 120 136 140 144 145
270 135 137 140 152 157 160 162
v. 𝑣 𝑎𝑟 𝑏 2 290 137 145 155 vi.
165 𝑠𝑒(𝑏2 )189
175
320 150 152 175 178 180 185 191
𝝈𝟐
𝒗𝒂𝒓 𝒃𝟐 = 𝒔𝒆(𝒃𝟐 ) = 𝒗𝒂𝒓 𝒃𝟐
σ 𝒙𝟐𝒊
= 0.002
𝟏𝟎𝟖. 𝟒𝟐𝟕𝟑
= = 𝟎. 𝟎𝟒𝟒𝟕
𝟓𝟑𝟎𝟒𝟎
= 𝟎. 𝟎𝟎𝟐
vii. Suppose someone is suggesting that weekly family income (X) has no relationship with to a weekly
family consumption expenditure (Y) .

a. Show the hypothesis statement.

𝐻0 : 𝐵2 = 𝟎, There is no relationship between weekly family income and weekly family consumption expenditure.
𝐻𝐴 : 𝐵2 ≠ 𝟎, There is a relationship between weekly family income and weekly family consumption expenditure.

b. What is the value of t-statistics?

෡ = 𝟐𝟕. 𝟐𝟓𝟔𝟖 + 𝟎. 𝟒𝟔𝟕𝟐𝑿
𝒀 𝑏2 − 𝑩∗𝟐 Note:
𝑡=
𝒔𝒆(𝒃𝟐 ) = 𝟎. 𝟎𝟒𝟒𝟕 𝑠𝑒 𝑏2 𝑩∗𝟐 = hypothesized value,
specific numerical value of 𝐵2 .
0.4672 − 𝟎
𝑡=
0.0447
= 𝟏𝟎. 𝟒𝟓𝟏𝟗

c. Determine the value of the degree of freedom ( d.f.).

𝒅. 𝒇. = 𝒏 − 𝟐
= 10 − 2
=𝟖
d. Based on 5 percent significance (𝜶) level, find the value of t-critical.
Significance level, 𝛼 = 0.05
Degree of freedom, 𝑑𝑓 = 8
t-critical value = 𝑡𝛼/2,𝑑𝑓
= 𝑡0.025, 8
= 𝟐. 𝟑𝟎𝟔

e. What is the p-value for the test?

p-value = 2 𝑝 𝑡8 ≥ 10.4519
10.452
= 𝒍𝒆𝒔𝒔 𝒕𝒉𝒂𝒏 𝟎. 𝟎𝟎𝟓

f. Can the null hypothesis be rejected and what is your conclusion on the relationship between weekly
income and weekly consumption expenditure?

▪ Yes. We can reject the null hypothesis since t-value greater than t-critical value (10.4519 > 2.306) and p-value less than
significance level. We can conclude that there is a relationship between weekly family income and weekly family
consumption expenditure.
g. What is the TSS for the SRF in Question 3 ?

𝑻𝒐𝒕𝒂𝒍 𝑺𝒖𝒎 𝒐𝒇 𝑺𝒒𝒖𝒂𝒓𝒆𝒔 𝑻𝑺𝑺 = ෍ 𝒚𝟐𝒊

= 𝟏𝟐𝟒𝟒𝟒. 𝟓
h. Determine the value of goodness-of-fit coefficient (𝒓𝟐).

𝟐
𝑹𝑺𝑺
𝑮𝒐𝒐𝒅𝒏𝒆𝒔𝒔 𝒐𝒇 𝒇𝒊𝒕 𝒄𝒐𝒆𝒇𝒇𝒊𝒄𝒊𝒆𝒏𝒕 (𝒓 ) = 𝟏 −
𝑻𝑺𝑺

σ 𝒆𝟐𝒊
= 1−
σ 𝒚𝟐𝒊

867.4186
= 1−
12444.5
= 𝟎. 𝟗𝟑𝟎𝟑
i. Determine the coefficient of correlation of the model ( 𝒓).

σ 𝒙 𝒊 𝒚𝒊
𝑪𝒐𝒆𝒇𝒇𝒊𝒄𝒊𝒆𝒏𝒕 𝒐𝒇 𝒄𝒐𝒓𝒓𝒆𝒍𝒂𝒕𝒊𝒐𝒏 𝒓 =
σ 𝒙𝟐𝒊 σ 𝒚𝟐𝒊
24780
=
(53040)(12444.5)
= 𝟎. 𝟗𝟔𝟒𝟓
Question 4
Answer Question 4 (a) – (e) based on information given below:

𝑌𝑡 𝑋2𝑖 𝑋3𝑖
2 2 12
4 4 9
8 6 6
10 X 8 Y 3
90 55 60 65 70 75
14 120 65 70 10
74 80 85 88 -1
140 79 84 90 94 98
16 170 80 93 12
95 103 108 113 115 -5
190 102 107 110 116 118 125
20 220
250
110
120
115
136
14
120
140
130
144
135
145
140
-7
270 135 137 140 152 157 160 162
22 290 137 145 16
155 165 175 189 -8
320 150 152 175 178 180 185 191

a. E s t i m a t e t h e t h r e e m u l t i p l e r e g r e s s i o n c o e ff i c i e n t s .
b. Estimate their variance and standard errors.
c. Obtain 𝑅2 and 𝑅 ഥ2.
d. Te s t t h e s t a t i s t i c a l s i g n i f i c a n c e o f e a c h e s t i m a t e d r e g r e s s i o n c o e ff i c i e n t u s i n g 𝛼 = 5 % ( t w o - t a i l ) .
e. Te s t a t 𝛼 = 5 % t h a t a l l p a r t i a l s l o p e c o e ff i c i e n t s a r e e q u a l t o z e r o .
a. Estimate the three multiple regression coefficients .

σ 𝒚𝒕 𝒙𝟐𝒕 σ 𝒙𝟐𝟑𝒕 − σ 𝒚𝒕 𝒙𝟑𝒕 σ 𝒙𝟐𝒕 𝒙𝟑𝒕 σ 𝒚𝒕 𝒙𝟑𝒕 σ 𝒙𝟐𝟐𝒕 − σ 𝒚𝒕 𝒙𝟐𝒕 σ 𝒙𝟐𝒕 𝒙𝟑𝒕 ഥ − 𝒃𝟐 𝑿
ഥ 𝟐 − 𝒃𝟑 𝑿
ഥ𝟑
𝒃𝟐 = 𝒃𝟑 = 𝒃𝟏 = 𝒀
σ 𝒙𝟐𝟐𝒕 σ 𝒙𝟐𝟑𝒕 − σ 𝒙𝟐𝒕 𝒙𝟑𝒕 𝟐 σ 𝒙𝟐𝟐𝒕 σ 𝒙𝟐𝟑𝒕 − σ 𝒙𝟐𝒕 𝒙𝟑𝒕 𝟐
= 12 − 1.3108 9 − (−0.1081) 1.125
248 398.875 − (−380)(−257) −380 168 − (248)(−257) = 𝟎. 𝟑𝟐𝟒𝟒
= =
168 398.875 − (−257)2 168 398.875 − (−257)2
෡ 𝒊 = 𝒃𝟏 + 𝒃𝟐 𝑿𝟐𝒊 + 𝒃𝟑 𝑿𝟑𝒊
𝒀
= 𝟏. 𝟑𝟏𝟎𝟖 = −𝟎. 𝟏𝟎𝟖𝟏
= 0.3244 + 1.3108𝑋2𝑖 − 0.1081𝑋3𝑖
b. Estimate their variance and standard errors.

σ 𝒆𝟐𝒕 𝟏 𝑿 ഥ 𝟐𝟐 σ 𝒙𝟐𝟑𝒕 + 𝑿
ഥ 𝟐𝟑 σ 𝒙𝟐𝟐𝒕 − 𝟐𝑿
ഥ 𝟐𝑿
ഥ 𝟑 σ 𝒙𝟐𝒕 𝒙𝟑𝒕
∙ 𝝈𝟐 𝒔𝒆 𝒃𝟏 = 𝒗𝒂𝒓 𝒃𝟏
ෝ𝟐
𝝈 = 𝒗𝒂𝒓 𝒃𝟏 = + 𝟐 𝟐
𝒏−𝟑 𝒏 σ 𝒙𝟐𝒕 σ 𝒙𝟑𝒕 − σ 𝒙𝟐𝒕 𝒙𝟑𝒕 𝟐
= 14.4617
1.8378
= 1 9 2 (398.875) + 1.125 2 (168) − 2(9)(1.125)(−257) = 𝟑. 𝟖𝟎𝟐𝟗
8−3 = + ∙ 0.3676
8 168 (398.875) − (−257)2
= 𝟎. 𝟑𝟔𝟕𝟔
= 𝟏𝟒. 𝟒𝟔𝟏𝟕
b. Estimate their variance and standard errors.

σ 𝒙𝟐𝟑𝒕 𝟐
σ 𝒙𝟐𝟐𝒕 𝒔𝒆 𝒃𝟐 = 𝒗𝒂𝒓 𝒃𝟐
𝒗𝒂𝒓 𝒃𝟐 = ∙𝝈 𝒗𝒂𝒓 𝒃𝟑 = ∙ 𝝈𝟐
σ 𝒙𝟐𝟐𝒕 σ 𝒙𝟐𝟑𝒕 − σ 𝒙𝟐𝒕 𝒙𝟑𝒕 𝟐 σ 𝒙𝟐𝟐𝒕 σ 𝒙𝟐𝟑𝒕 − σ 𝒙𝟐𝒕 𝒙𝟑𝒕 𝟐
= 0.1524
398.875 168 = 𝟎. 𝟑𝟗𝟎𝟒
= ∙ 0.3676 = ∙ 0.3676
168 398.875 − (−257)2 168 398.875 − (−257)2
𝒔𝒆 𝒃𝟑 = 𝒗𝒂𝒓 𝒃𝟑
= 𝟎. 𝟏𝟓𝟐𝟒 = 𝟎. 𝟎𝟔𝟒𝟐
= 0.0642
= 𝟎. 𝟐𝟓𝟑𝟒
 ഥ𝟐.
c. Obtain 𝑹𝟐 and 𝑹

𝒃𝟐 σ 𝒚𝒕 𝒙𝟐𝒕 + 𝒃𝟑 σ 𝒚𝒕 𝒙𝟑𝒕 𝒏−𝟏

𝑹𝟐 = ഥ 𝟐 = 𝟏 − (𝟏 − 𝑹𝟐 )
𝑹
σ 𝒚𝟐𝒕 𝒏−𝒌

1.3108 248 + (−0.1081)(−380) 8−1

= = 1 − (1 − 0.9950)
368 8−3

= 𝟎. 𝟗𝟗𝟓𝟎 = 𝟎. 𝟗𝟗𝟑𝟎
d . Te s t t h e s t a t i s t i c a l s i g n i f i c a n c e o f e a c h e s t i m a t e d r e g r e s s i o n c o e f f i c i e n t u s i n g 𝜶 = 5 % ( t w o - t a i l ) .

STEP 1: Define the hypothesis statement.

𝐻0 : 𝛽1 = 𝟎 𝐻0 : 𝛽2 = 𝟎 𝐻0 : 𝛽3 = 𝟎
𝐻𝐴 : 𝛽1 ≠ 𝟎 𝐻𝐴 : 𝛽2 ≠ 𝟎 𝐻𝐴 : 𝛽3 ≠ 𝟎

STEP 2: Choose level of significance, 𝜶.

Significance level, 𝛼 = 0.05

STEP 3: Develop the t-statistics.

𝑏1 − 𝑩𝟏∗ 𝑏2 − 𝑩𝟐∗ 𝑏3 − 𝑩𝟑∗
𝑡= 𝑡= 𝑡=
𝑠𝑒 𝑏1 𝑠𝑒 𝑏2 𝑠𝑒 𝑏3
0.3244 − 𝟎 1.3108 − 𝟎 −0.1081 − 𝟎
= = =
3.8029 0.3904 0.2534
= 𝟎. 𝟎𝟖𝟓𝟑 = 𝟑. 𝟑𝟓𝟕𝟔 = −𝟎. 𝟒𝟐𝟔𝟔

STEP 4: Determine the t-critical value or p-value.

t-critical value = 𝑡𝛼/2,𝑑𝑓 d.f. = 𝑛 − 3
= 𝑡0.025, 5 =8−3
= 𝟐. 𝟓𝟕𝟏 =5
d . Te s t t h e s t a t i s t i c a l s i g n i f i c a n c e o f e a c h e s t i m a t e d r e g r e s s i o n c o e f f i c i e n t u s i n g 𝜶 = 5 % ( t w o - t a i l ) .

STEP 5: Decision making.

t-value t-critical value

𝑏1 0.0853
𝑏2 3.3576 2.571
𝑏3 -0.4266

▪ Do not reject the null hypothesis that 𝛽1 equal zero since t-value smaller than t-critical value (0.0853 < 2.571).
▪ Reject the null hypothesis that 𝛽2 equal zero since t-value greater than t-critical value (3.3576 > 2.571).
▪ Do not reject the null hypothesis that 𝛽3 equal zero since t-value smaller than t-critical value (0.4266 < 2.571).
e . Te s t a t 𝜶 = 5 % t h a t a l l p a r t i a l s l o p e c o e f f i c i e n t s a r e e q u a l t o z e r o .

STEP 1: Define the hypothesis statement.

𝐻0 : 𝛽2 = 𝛽3 = 0 𝐻0 : 𝑅2 = 0
or
𝐻𝐴 : 𝛽2 = 𝛽3 ≠ 0 𝐻𝐴 : 𝑅2 ≠ 0

STEP 2: Choose level of significance, 𝜶.

Significance level, 𝛼 = 0.05

STEP 3: Develop the F-statistics.

𝑹𝟐 Τ(𝒌 − 𝟏)
𝑭=
(𝟏 − 𝑹𝟐 )Τ(𝒏 − 𝒌)

0.9950Τ(3 − 1)
=
(1 − 0.9950)Τ(8 − 3)
= 𝟒𝟗𝟕. 𝟓

STEP 4: Determine the F-critical value.

df(1) = 𝑘 − 1 df(2) = 𝑛 − 𝑘 F-critical value = 𝐹𝛼,(𝑑𝑓1,𝑑𝑓2)
=3−1 =8−3 = 𝐹0.05, (2,5)
=2 =5
= 𝟓. 𝟕𝟗
e . Te s t a t 𝜶 = 5 % t h a t a l l p a r t i a l s l o p e c o e f f i c i e n t s a r e e q u a l t o z e r o .

STEP 5: Decision making.

F-value F-critical value

497.5 5.79

▪ Reject the null hypothesis that the two explanatory variables together have no influence on Y since F-
value greater than F-critical value (497.5 > 5.79).