04 Jun LIST AND BRIEFLY DESCRIBE THE SEVEN ASSUMPTIONS OF THE CLASSICAL LINEAR MODEL.
List and briefly describe the seven assumptions of the classical linear model.
Question
HOMEWORK 3
Econ 4400, Elementary Econometrics
Directions: Please follow the instructions closely. Questions 1-10 are worth 9 points
each. Question 10 is worth 10 points.
Due: All problem sets have to be turned in at the beginning of the class.
Due Dates:
Section 15138: September 29
Section 15139: September 30
Table 1 shows the results from estimating the number of drinks per week as a function
of receiving doctor’s advice to drink less, education, divorced, and unemployment. Dr.’s
advice, divorced, and unemployed are all dummy variables. Regression coefficients are
displayed with standard errors in parentheses.
1. Write out the estimated equation. (This means use the numbers in the table
instead of ?s.)
2. Use the equation in number 1 to estimate the number of drinks per week for a
person with 12 years of education that did not receive doctor’s advice, is divorced,
and has a job.
3. Interpret the coefficient on education.
4. Interpret the coefficient on unemployed.
5. Why might the coefficient on advice be biased?
6. I wanted to find the effect of not getting doctor’s advice on drinks, so I added a
dummy variable for no advice. However, STATA did not produce results. Why?
7. List and briefly describe the seven assumptions of the classical linear model.
8. Conduct a t-test on the null hypothesis that education has no effect on drinking.
(Any time you are asked to conduct a test you must include: H0 , HA , calculation
of appropriate test statistic, mention of degrees of freedom, mention of significance
level, critical value of test statistic, and your decision. )
9. Solve for the missing R2 and RSS in table 1.
¯ 2 compare to the R2 that you found in the previous question?
10. How does the R
¯ 2 to answer this question. )
(You do not have to solve for the R
Table 1: Regression results on Drinks per Week
(1)
drinks
Advice
8.620
(4.325)
Education
0.0934
(0.644)
Divorced
7.260
(5.600)
Unemployed
32.74
(14.68)
Constant
8.598
(8.774)
100
4697.6
???
44277.4
???
N
ESS
RSS
TSS
R2
Standard errors in parentheses
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