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ECO465 SampleMidterm

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13 views2 pages

ECO465 SampleMidterm

Uploaded by

mohammadali12198
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Sample Midterm Examination

ECO465: Basic Econometrics


Total 100 points

You must return the question paper along with your answer script • Before you begin, skim
through the exam to see how points are allocated • Your answers must be in the same order
as presented here • There will be no additional papers for the exam • You must show your work
for each question • Answers without work will not receive any credit • When drawing
diagrams, make sure you label all axes and curves, where appropriate, intercepts and points of
tangency • Draw a box around the key points of your answers.

Good Luck!

Problem 1 (20 points).


Consider the earnings data for husbands and wives in an economy. The mean earnings of
husbands is Taka 10,000 a week with a standard deviation of Taka 2,500. The mean of wives’
earnings is Taka 11,000 with a standard deviation of Taka 4,000. The correlation between
husbands’ and wives’ earnings is 0.80. Let H denote husbands’ earnings, W denote wives’
earnings and X denote the combined earnings for a randomly selected couple. Answer the
CLO1

following questions. You must limit your answer to one page.

(a) (5 points) What is the mean of X?


(b) (5 points) What is the standard deviation of X?
(c) (10 points) Can you comment on the association between husbands’ and wives’ earnings?
Justify your answer.

Problem 2 (40 points).

(a) (20 points). Consider a simple linear regression model 𝑌𝑖 = 𝛽0 + 𝛽1 𝑋𝑖 + 𝑢𝑖 . Derive the OLS
estimators of 𝛽0 and 𝛽1 and their standard errors (𝑠𝑒(𝛽0 ) & 𝑠𝑒(𝛽1 )) when the standard
assumptions hold.

You must limit your answer to three page.

(b) (10 points) Consider the simple regression model 𝑌𝑖 = 𝛽0 + 𝛽1 𝑋𝑖 + 𝑢𝑖 . Show that the OLS
estimator 𝛽̂1 is the ratio of covariance and variance as follows.
CLO2

𝐶𝑜𝑣(𝑋, 𝑌)
𝛽̂1 =
𝑉𝑎𝑟(𝑋)
You must limit your answer to one page.

(d) (10 points) Suppose the true regression model is 𝑌𝑖 = 𝛽0 + 𝛽1 𝑋1𝑖 + 𝛽2 𝑋2𝑖 + 𝑢𝑖 but you
estimate 𝑦𝑖 = 𝛽̃0 + 𝛽̃1 𝑋1𝑖 + 𝑢̃𝑖 . Additionally, suppose 𝑋𝑖1 = 𝛿0 + 𝛿1 𝑋𝑖3 + 𝑣𝑖 . What conclusions
can you draw about the unbiasedness of the OLS estimator 𝛽̃̂ ? Justify you answer. You must
1
limit your answer to one page.

1
Problem 3 (40 points).

(a) (15 points) Suppose you want to estimate the simple regression model 𝑌𝑖 = 𝛽0 + 𝛽1 𝑋𝑖 + 𝑢𝑖
using OLS method. You have the following information.

∑𝑋𝑖 = 200, ∑𝑋𝑖2 = 2742, ∑(𝑋𝑖 − 𝑋 ̅)2 = 742,


∑𝑌𝑖 = 242, ∑𝑌𝑖2 = 3838, ∑(𝑌𝑖 − 𝑌̅ )2 = 909.8, ∑𝑋𝑖 𝑌𝑖 = 3021
2
∑(𝑌̂𝑖 − 𝑌̅ ) = 486.8, ∑𝑢̂𝑖2 = 423.006
𝑋̅ = 10, 𝑌̅ = 12, & 𝑛 = 20
[

Compute 𝛽̂0 , 𝛽̂1 , 𝑠𝑒(𝛽̂1 ) and the coefficient of determination. You must limit your answer to
one page.

(b) (25 points) Suppose you estimate an earnings function (ln (𝑤𝑎𝑔𝑒𝑖 ) = 𝛽0 + 𝛽1 𝑒𝑑𝑢𝑖 + 𝑢𝑖 ) to
examine the relationship between hourly wage rate (𝑤𝑎𝑔𝑒) and years of schooling (𝑒𝑑𝑢) as
CLO2

follows (standard errors are in parentheses).

ln ̂
𝑤𝑎𝑔𝑒𝑖 = 0.60 + 0.10𝑒𝑑𝑢𝑖

(0.10) (0.008)

𝑅 2 = 0.186, 𝑛 = 62.

(i) (10 points) Interpret the estimated parameters, 𝛽̂0 , 𝛽̂1 and 𝑅 2 .

(ii) (10 points) What is your expectation regarding the relationship between education
and earnings? Using a 5% significance level, test your hypothesis (carefully state the
null and the alternative hypotheses).

(iii) (5 points) Is this relationship causal? Justify your answer.

You must limit your answer to two pages ((i)-(iii)).

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