Part I

4.5. Find the critical t value(s) in the following situations:

_____________________________________________________________
Degrees of freedom

level of significance

H0

(d.f.)

(%)

12

Two-tail

20

Right-tail

30

Left-tail

200

Two-tail

4.6. Find the critical F values for the following combinations:

Numerator d.f.

Denominator d.f.

Level of significance (%)

19

20

200

4.11. To explain what determine the price of conditioners B. T. Ratchford obtain the following regression
results based on a sample of 19 air conditioners:
i = -68.236 + 0.023X2i + 19.729X3i + 7.653X4i R2 = 0.84
Se =

(0.005)

(8.992)

(3.082)

Where Y = the price, in dollars

X2 = the BTU rating of air conditioner
X3 = the energy efficiency ratio
X4 = the number of settings
se = standard errors

a. Interpret the regression results.

b. Do the results the result make economic sense?
c. At = 5% , test the hypothesis that the BTU rating has no effect on the price of an air
conditioner verses that it has a positive effect.
d. Would you accept the null hypothesis that the three explanatory variables explain a substantial
variation in the prices of air conditioners? Show clearly all your calculations.
4.12. Based on the U.S. data for 1965-IQ to 1983-IVQ (n = 76), James Doti and Esmael Adibi obtained the
following regression to explain personal consumption expenditure (PCE) in the United States.
= -10.96 + 0.93X2t 2.09X3t
t = (- 3.33) (249.06) (-3.09)

R2 = 0.9996
F = 83,753.7

Where Y = the PCE ($, in billions)

X2 = the disposable (i.e., after-tax) income ($, in billions)
X3 = the prime rate (%) charged by banks
a. What is the marginal propensity to consume (MPC) the amount of additional consumption
expenditure from an additional dollars personal disposable income?
b. Is the MPC statistically different from 1? Show the appropriate testing procedure.
c. What is the rationale for the inclusion of the prime rate variable in the model? A priori, would
you expect a negative sign for this variable?
d. Is b3 significantly different from zero?
e. Test the hypothesis that R2 = 0.
f. Compute the standard error of each coefficient.
4.13. In the illustrative example 4.2 (page 97), test the hypothesis that X2 and X3 together have no
influence on Y. Which test will you use? What are the assumptions underlying the test?
4.21. Refer to Example 4.5 (page 103 of the text)
a. Use method of restricted least squares to find out if it is worth adding the Pop (population) variable to
the model.
b. Divide both Educ and GDP by Pop to obtain Educ per capital Educ and per GDP. Now regress per
capita Educ on per capita GDP and compare your results with those given in example 4.5. What
conclusion can you draw from this exercise?

Part II
6.3. If you have a monthly data over a number of years, how many dummy variables will you introduce
to test the following hypotheses?
a. All 12 months of the year exhibits seasonal patterns.
b. Only February, April, June August, October and December exhibit seasonal patterns.
6.6. Consider the following Model:
Yi = B0 + B1Xi + B2D2i + B3D3i + ui
Where Y = annual earnings of MBA graduates
X = years of service
D2 = 1 if Harvard MBA
= 0 if otherwise
D3 = 1 if Wharton MBA
= if otherwise
a. What are the expected signs of the various coefficients?
b. How would you interpret B2 and B3?
c. If B2 > B3, what conclusion would you draw?
6.7. Continue with question 6.6 but now consider the following model:
Yi = B0 + B1Xi + B2D2i + B3D3i + B4(D2iXi) + B5(D3iXi) + ui
a. What is the different between this model and the one given in question 6.6
b. What is the interpretation of B4 and B5?
c. If B4 and B5 are individually statistically significant, would you choose this model over the
previous one? If not, what kind of bias or error are you committing?
d. How would you test the hypothesis that B4 = B5 = 0?
6.11. Table 6-12 on the text books web site gives nonseasonally adjusted quarterly data on the retail
sales of hobby, toy, and game stores (in millions) for the period 1992: I to 2008: to II
Consider the following model:
Salest = B1 + B2D2t + B3D3t +B4D4t + ut
Where D2 = 1 in the second quarter, = 0 if otherwise
D3 = 1 in the third quarter, = 0 if otherwise

D4 = 1 in the fourth quarter, = 0 if otherwise

a.
b.
c.
d.

Estimate the preceding regression.

What is the interpretation of the various coefficients
Give a logical reason for why the results are this way.
How would you use the estimated regression to deseasonalize the data

6.28. Based on the current population survey (CPS) of March 1995 Paul Rudd extracted a sample of 1289
workers, aged 18 to 65, and obtained the following information on each worker:
Wage = hourly wage in dollar
Age = age in years
Female = 1 if female worker
Nonwhite = 1 if a nonwhite worker
Union = 1 if a union member
Education = years of schooling
Experience = Potential labor market experience in years.
The full data set can be found as table 6-16 on the text books web site.
a. Based on these data, estimate the following model, obtaining the usual regression statistics. In
wagei = B1 + B2Age + B3 Female + B4 Nonwhite + B5 Union + B6 Education + B7 Experience + ui
where In wage = (natural logarithm of wage)
b. How do you interpret each regression coefficient?
c. Which of these coefficients are statistically significant at the 5% level? Also obtain the p value of
each estimated t value.
d. Do union worker, on average, earn a higher hourly wage?
e. Do female workers, on average, earn less than their male counterparts?
f. Is the average hourly wage of female nonwhite workers lower than the average hourly wage of
female white workers? How do you know? (Hint: interaction dummy)
g. Is the average hourly wage of female union workers higher than the average hourly wage of
female non union workers? How do you know?