ASSIGNMENT OC CHAPTER 7

Assignment
1. With the OLS procedure in the case of two independent or explanatory
variables, derive (a) normal Eq. (D2), (b) normal Eq. (D3), and (c) normal
Eq. (D4).

2. For the two independent or explanatory variable multiple linear regression

model, (a) derive the normal equations in deviation form. (b) How are Eqs.
(D5), (D6), and (D7) derived for b^ 1, b^ 2, and b^ 0?

With reference to multiple regression analysis with two independent or

explanatory variables, indicate the meaning of (a) b^ 0 (b) b^ 1, (c)b^ 2.

(a) Parameter b^ 0 is the constant term or intercept of the regression and gives the
estimated value of Y i, when X 1 i= X 2 i=0.
(b) Parameter b^ 1, measures the change in Y for each one-unit change in X 1 i , while
holding X 2 i constant. Slope parameter b, is a partial regression coefficient because
it corresponds to the partial derivative of Y with respect to X 1, or ∂ Y ∕ ∂ X 1.
(c) Parameter b^ 2 measures the change in Y for each one-unit change in X 2 while
holding X 1 constant. Slope parameter b^ 2 is the second partial regression coefficient
because it corresponds to the partial derivative of Y with respect to X 2 , or ∂ Y ∕ ∂ X 2.
3. Table (D1.3) gives the real per capita income in thousands of U.S. dollars Y with
the percentage of the labor force in agriculture X 1, and the average years of
schooling of the population over 25 years of age X 2 for 15 developed countries in
1981.
(a) Find the least-squares regression equation of Y on X and X2.
(b) Interpret the results of part (a).

Table(D1.3) Per Capita Income, Labor Force in Agriculture, and Years of

Schooling
n 2 3 4 5 6 7 8 9 1 1 1 1 1 1
0 1 2 3 4 5
Y 8 8 7 7 1 9 8 9 1 1 1 9 1 1
2 0 0 1 0 1
X1 1 8 7 1 4 5 5 6 8 7 4 9 5 8
0 0
X2 1 1 1 1 1 1 1 1 1 1 1 1 1 1
3 1 0 2 6 0 0 2 4 2 6 4 0 2
 ASSIGNMENT OC CHAPTER 7

2 2
4. For the data in Table D1.3, find (a) s2, (b) sb^ and sb^ , and (c) sb^ and sb^ .
1 1 2 2

5. Also solve problem 3, 4 by Matrix notation method using MATLAB.

6. Test at the 5% level of significance for (a) b 1 and (b) b 2 in Prob. 3(a).

7. Find R^2 for the OLS regression equation estimated in Problem 3(a), using (a)
b^ 1 ∑ y x1 + b^ 2 ∑ y x 2
2 2
2 ∑ ^y i 2 ∑ ei
R= 2 , (b)
R =1− 2 and (c) R2= 2 .
∑ yi ∑ yi ∑ yi

8. Table D1.4 extends Table C3 and gives the per capita GDP (gross domestic
product) to the nearest $100 (Y ) and the percentage of the economy represented by
agriculture ( X 1), and the male literacy rate ( X 2 ) reported by the World Bank World
Development Indicators for 1999 for 15 Latin American countries.
(a) Find the least-squares regression equation of Y on X, and X2.
(b) Interpret the results of part a and compare them with those of Prob. Related to
Table C3.

Table D1.4 Per Capita Income, Agricultural Proportion, and Literacy

Country : (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15)
n 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Y 76 10 44 47 23 19 13 19 8 44 4 31 24 59 37
X1 6 16 9 8 14 11 12 10 18 3 26 8 8 9 5
X2 97 92 85 96 91 83 93 81 74 93 67 92 94 97 93

9. Table D1.5 gives the hypothetical quantity demanded of a commodity, Y , its

price, X 1, and consumers’ income, X 2 , from 1985 to 1999.

(a) Fit an OLS regression to these observations.

(b) Test at the 5% level for the statistical significance of the slope parameters.

(c) Find the unadjusted and adjusted coefficient of multiple correlation.

ASSIGNMENT OC CHAPTER 7

(d) Test for the overall significance of the regression.

(e) Find the partial correlation coefficients and indicate which independent variable
contributes more to the explanatory power of the model.

(f) Report all the results in summary and round off all calculations to four decimal
places.

Table D1.5 Quantity Demanded of a Commodity, Price, and Consumers

Income, 1985-1999
Year Y X1 X2
1985 40 9 400
1986 45 8 500
1987 50 9 600
1988 55 8 700
1989 60 7 800
1990 70 6 900
1991 65 6 1000
1992 65 8 1100
1993 75 5 1200
1994 75 5 1300
1995 80 5 1400
1996 100 3 1500
1997 90 4 1600
1998 95 3 1700
1999 85 4 1800
10. Table D1.6 extends Table C2 and gives observations on Y , X 1 ,and X 2 . Find the
OLS regression equation of Y on X 1 and X 2 .
Interpret (a) b^ 0(b)b^ 1 ,and(c) b^ 2.

Table D1.6
n I 2 3 4 5 6 7 8 9 10
Y 20 28 40 45 37 52 54 43 65 56
X1 2 3 5 4 3 5 7 6 7 8
X2 5 6 6 5 5 7 6 6 7 7

2 2 2
11. With reference to the data in Table D1.6, find s , s ^b , sb^ , s b^ , s ^b .
1 1 2 2

12. Test at the 5% level of significance for b 1andb 2 in Prob. 11.

13. Construct the 95% confidence interval for b 1andb 2 in Prob. 11.

14 For the estimated OLS regression found in Prob. 11, find (a) R2and (b) R2(c)
Should X 2 be included in the regression?

15. For the estimated OLS regression in Prob. 11, find (a) the explained variance,
(b) the unexplained or residual variance, and (c) the F ratio or statistic.
ASSIGNMENT OC CHAPTER 7

16. Test the overall significance of the OLS regression estimated in Prob. 11 at (a)
the 5% level and (b) at the 1% level.

17. For the estimated OLS regression in Prob. 11, find (a) r Y X . X and (b) r Y X . X (c)
1 2 2 1

Which independent variable contributes more to the explanatory power of the

model?

18.Table D1.7 gives data for a random sample of 12 couples on the number of
children they had, Y , the number of children they stated that they wanted at the
time of their marriage, X 1, and the years of education of the wife, X 2 .
(a) Find the OLS regression equation of Y on X 1and X 2 .
(b) Calculate t values and test at the 5% level for the statistical significance of
the slope parameters.
(c) Find the unadjusted and adjusted coefficient of multiple correlation.
(d) Test for the overall significance of the regression.
(e) Find the partial correlation coefficients and indicate which independent
variable contributes more to the explanatory power of the model. Carry out
all calculations to two decimal places.

Table D1.7
Couple 1 2 3 4 5 6 7 8 9 10 11 12
Y 4 3 0 4 4 3 0 4 3 1 3 1
X1 3 3 0 2 2 3 0 3 2 1 3 2
X2 12 14 18 10 10 14 18 12 15 16 14 15