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PART TWO Solutions to Empirical Exercises
Chapter 3
Review of Statistics
Solutions to Empirical Exercises
1. (a) Average Hourly Earnings, Nominal $’s Mean AHE1992 AHE2004 AHE2004 − AHE1992 (b) Average Hourly Earnings, Real $2004 Mean AHE1992 AHE2004 AHE2004 − AHE1992 15.66 16.77 Difference 1.11 SE(Mean) 0.086 0.098 SE(Difference) 0.130 95% Confidence Interval 15.49−15.82 16.58−16.96 95% Confidence Interval 0.85−1.37 11.63 16.77 Difference 5.14 SE(Mean) 0.064 0.098 SE(Difference) 0.117 95% Confidence Interval 11.50−11.75 16.58−16.96 95% Confidence Interval 4.91−5.37
(c) The results from part (b) adjust for changes in purchasing power. These results should be used. (d) Average Hourly Earnings in 2004 Mean High School College
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(b) Bob’s predicted years of completed education = 13.96 − 0.073 × 2 = 13.81 Bob’s predicted years of completed education if he was 10 miles from college = 13.96 − 0.073 × 1 = 13.89 (c) The regression R2 is 0.0074, so that distance explains only a very small fraction of years of completed education. (d) SER = 1.8074 years. 4. (a) 10 5 Growth 0 -5 0 .5 1 Trade Share 1.5 2 Yes, there appears to be a weak positive relationship. (b) Malta is the “outlying” observation with a trade share of 2. · (c) Growth = 0.64 + 2.31 × Tradeshare Predicted growth = 0.64 + 2.31 × 1 = 2.95 · (d) Growth = 0.96 + 1.68 × Tradeshare Predicted growth = 0.96 + 1.68 × 1 = 2.74 (e) Malta is an island nation in the Mediterranean Sea, south of Sicily. Malta is a freight transport site, which explains its large “trade share”. Many goods coming into Malta (imports into Malta) and immediately transported to other countries (as exports from Malta). Thus, Malta’s imports and exports and unlike the imports and exports of most other countries. Malta should not be included in the analysis. Chapter 5 Regression with a Single Regressor: Hypothesis Tests and Confidence Intervals Solutions to Empirical Exercises 1. (a) · AHE = 3.32 + 0.45 × Age (0.97) (0.03) The t-statistic is 0.45/0.03 = 13.71, which has a p-value of 0.000, so the

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