Introductory Econometrics
Home Assignment 1
by Hieu Nguyen
Fall 2024
Solution of the assignment is to be delivered electronically to 254279@muni.cz
by Saturday, 26 October, 2024 23:59:59 the latest. Late submissions will
not be accepted, resulting in zero points.
Form teams of two people, please. Only one team member is supposed to
submit the solution with both team members’ names and email addresses on
the first page of the document. Teams are required to work independently, and
any form of plagiarism will be treated accordingly. Please understand that the
main advantage of teamwork is the synergy from solving the problems together
and the possibility to share and discuss your econometric knowledge with your
teammate. It is not about a pure division of tasks. So, please, do cooperate and
make sure you both understand all solutions completely.
Submit your work with (i) a report in the .pdf format and (ii) the
Excel .xls(x). Grade is given based mainly on report .pdf but Excel .xls(x)
will be checked to ensure the calculations are correctly done.
Name the file Surname1 Surname2 HA01.pdf.
In your report, please, be clear and reasonably concise, but do explain all
essential steps of your solution/reasoning. Keep in mind that not only the correctness
of your answers and interpretations is assessed, but also the text-editing
quality is an integral part of your output.
Fingers crossed!
Hieu Nguyen
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Problem 1: Test scores
(2 points, 0.5pt each) A nationwide test score has a mean of 63 points and a
variance of 121.
1. Convert the following raw scores to standardized Z values: 52, 91.
2. What raw scores correspond to standardized values Z = 2 and Z = −1.5?
3. Assuming that the test score is normally distributed, what is the probability
that a randomly selected individual who participated in the test has
obtained a test score higher or equal to 41?
4. Assuming normality again, what is the probability that a randomly selected
individual has obtained a test score between 55 and 75?
Problem 2: Modeling demand for beer consump-
tion
(8 points) Let us consider a simple regression model to explain the demand for
beer. From the theory of consumer choice in microeconomics, we know that the
demand for goods also depends on income. We will thus focus on this trivialized
linear relationship. The data file HomeAssignment 01 Problem2data.xlsx contains
a data sample of 30 observations of annual beer consumption (in liters) and
annual income (in USD thousands) collected from randomly selected households.
Answer the following questions. You can use Seminar #2 as a reference.
1. (1 pt) Formulate the econometric model. Using the OLS formula, estimate
the intercept and slope parameters. Show the estimated model equation.
2. (1 pt) Interpret the meaning of the estimated coefficient of income. Does
the direction of the income effect follow your economic intuition? Explain
why/ why not.
3. (1 pt) Does the estimated intercept make sense in this situation? If yes,
provide your economic interpretation. If not, explain why.
4. (1 pt) Find and list the model’s estimated/fitted values and residuals. Do
the sum of the residuals up to zero? (show clearly in Excel file)
5. (0.5 pt) Predict the beer consumption for households with an annual income
of USD 60,000 and with USD 30,000.
6. (1pt) Consider carefully the 6 Classical Assumptions step-by-step. Which
of them are likely to be violated? Explain your reasoning properly.
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7. (1 pt) What are the consequences in case some specific Classical Assumptions
are violated? Think mainly about OLS properties (unbiasedness,
consistency, efficiency).
8. (1 pt) Comment on the overall results of your analysis. Does the model
suggest a realistic relationship between beer consumption and households’
income?
Attached: HomeAssignment 01 Problem2data.xlsx
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