Brooklyn College

Economics Department
Economics 4400w

Chun Wang

Spring 2016
Midterm 2 (May 9th)

Name (Please Print): _____________________________

Last four digits of your Student I.D.:_________________

Please Note:
1.

Please do not turn to next page if words are not given. Now it is time for you to
write down your name and student ID number.

2.

Succinct responses are strongly encouraged. Any erroneous or too much

irrelevant information will count against you. Therefore, you will not receive full
credit if you provide a complete correct answer but also include erroneous or too
much irrelevant information. No credit will be given to answers that do not
address the question.

3.

Show all your work as required.

When time is called, please stop work immediately.

Part 1: Multiple Choices Questions (20 points)

1. Which of the following is definitely true when regressing Y on X?

(a) The regression line will pass through the point ( X , Y ).
(b) The regression line will pass through the origin.
(c) The regression line will pass through at least one data point in the sample.
(d) The regression line will pass through all of the data points in the sample.
2. Multicollinearity is a problem that arises when
(a) the dependent variable is highly correlated with the regressors
(b) the regressors are highly correlated with each other
(c) the error is highly correlated with the dependent variable
(d) the error is highly correlated with the regressors
3. Suppose in regression of food on an intercept and income we wish to also control for region.
The U.S. can be split into four regions: the north-east, south, central or west and we compute
four separate indicator variables for whether or not the family lives in each of these regions. We
should
(a) include just one of the four indicator variables in the regression
(b) include two of the four indicator variables in the regression
(c) include three of the four indicator variables in the regression
(d) include all four indicator variables in the regression
4. When a regressor is added to a regression model
(a) Adjusted R-square always increases
(b) Adjusted R increases if the added regressor has a large t-statistic in absolute value
(c) Adjusted R2 increases if R2 increases
(d) None of the above
5. Heteroskedasticity means that
(a) homogeneity cannot be assumed automatically for the model.
(b) the variance of the error term is not constant.
(c) the observed units have different preferences.
(d) agents are not all rational.
Part 2: Short Answer Questions (80 points)

We have data on Median Housing Rents and related data for 58 California Counties from the
2000 Census.
Dependent Variable
Rent = Monthly rent (median in the county) for Occupied Housing in 2000 in dollars.
Log (Rent) = Natural logarithm of Rent.
Regressors
Value = Value (median in the county) of an Occupied House in the county in 2000 in dollars.
Vacancy Rate = Percentage of Rental Housing Units in the county unoccupied in 2000.
Persons PH = number of persons per household in Occupied Housing in the county
%Renter = Percentage of Occupied Housing in the county that is rental (rather than nonrental)

Use the two pages of output provided at the end of this exam on:
1. Descriptive statistics output for all variables.
2. Correlations.
3. Histogram and scatterplot.
4. Various TINV values.
5. Three regressions.
Part of the following questions involves deciding which output to use. You can use
the output that gets the correct answer in the quickest possible way.
1. Does rent appear to be symmetrically distributed? Explain your answer. (5 points)

2. On average how many years would a house need to be rented until the accumulated rent
equalled the value of the house? (5 points)

3. Which variable appears to be most highly correlated with rent? Explain your answer. (5 points)

For questions 4, 5, 6 and 7, the regression studied is a linear regression of Rent on Value.
4. According to the regression results, by how much does rent change by in response to a one
thousand dollar increase in house value? (6 points)

5. Give a 95 percent confidence interval for the population slope parameter. (6 points)

6. From Figure 2 output the R 2 0.90 (to two decimal places). State how you could have
obtained this from the Figure 1 output. (6 points)

7. Predict the actual rent for house value of $200,000. (5 points)

For questions 8, 9, 10 and 11, consider both the regressions where Rent is the dependent variable.
8. Is the vacancy rate an important determinant of rent? Explain your answer. (5 points)

9. Are value, vacancy rate, persons per household and % renter jointly statistically significant at
5 percent? Perform an appropriate test. State clearly the null and alternative hypotheses of your
test, and your conclusion. (10 points)

10. Which model explains the data better, the multivariate regression or the bivariate regression,
on the basis of fit of the model? Explain your answer. (6 points)

11. Which model explains the data better, the multivariate regression or the bivariate regression,
on the basis of a formal test of statistical significance at 5 percent? Perform an appropriate test.
State clearly the null and alternative hypotheses of your test, and your conclusion. Note that
FINV(.05,3,53)=2.78. (10 points)

For questions 12 and 13, consider the regression where Log(Rent) is the dependent variable.
12. Provide a meaningful interpretation of the estimated coefficient for Value. (6 points)

13. Does this regression provide an easy way to estimate the elasticity of house rent with respect
to house value. If yes, give the estimate. If no, give a method that does provide an easy way to
estimate this elasticity. (5 points)

Some Useful Formulas:

1 n
xi
n i 1
1 n
2. s x2
( xi x ) 2

n 1 i 1
s
3. x t / 2;n 1 x
n
x 0
4. t
s

1. x

n
5. TDIST (t , df ,1) Pr[T t ]
6. TDIST (t , df ,2) Pr[| T | t ]
7. t / 2 such that Pr[| T | t / 2 ] is calculated using TINV ( , df )
n

8. b1

9. t

(x
i 1

x )( y i y )

(x
i 1
*
j

x)

and b0 y b1 x

bj
sb j

10. b j t / 2; n k 1 sb , where t / 2; n k 1 TINV ( , n k 1)

j

11. F

c FINV ( , k , n k 1)
R2 / k
,
2
(1 R ) /(n k 1) P FDIST ( F , k , n k 1)

12. F

P FDIST ( F , q, n k 1)
( Ru2 Rr2 ) / q
,
2
(1 Ru ) /( n k 1) c FINV ( , q, n k 1)