BA 214: Introductory Econometrics
Assignment 3
Instructions:
1. Practise these questions for your end-semester exams on white A4 papers.
2. Scan the pages and create one pdf that must be uploaded to the classroom
by May 10, 2023.
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Q1. Explain using a suitable example the steps involved in an empirical research
exercise.
Q2. Consider the following regression model:
𝑌𝑖 = 𝛽1 + 𝛽2 𝑋𝑖 + 𝑢𝑖
Prove that
𝐶𝑜𝑣 (𝑋, 𝑌)
𝛽̂2 =
𝜎𝑋2
and
𝛽̂1 = 𝑌̅ − 𝛽̂2 𝑋̅
Using these formulae, find the appropriate regression equation for the following
data:
Price (Rs) 10 12 13 12 16 15
Amount 40 38 43 45 37 43
Demanded
Also, estimate the likely demand when price is Rs 20.
Q3. Why are there always two lines of regression? Are the two regression
equations reversible? Why or why not?
Q4. From the following data, obtain the two regression equations: Y on X and
X on Y:
X 2 4 6 8 10
Y 5 5 9 8 11
Q5. Prove the following result:
Q6. Based on the data collected on a particular Monday for 13 second year
students, we want to estimate the following population regression equation:
𝑌𝑖 = 𝛽1 + 𝛽2 𝑋𝑖 + 𝑢𝑖
where:
Yi : Travelling time (in hours) for the ith student from her home to college
Xi : Distance from home to college for the ith student in km
The sample gave the following values:
∑ 𝑋𝑖 = 195 ; ∑ 𝑌𝑖 = 26 ; ∑ 𝑋𝑖2 = 3050 ; ∑ 𝑌𝑖2 = 53 𝑎𝑛𝑑 ∑ 𝑋𝑖 𝑌𝑖 = 400
Using the above data, find the estimated mean travelling time when the distance
between the college and a student’s house is 11 km.
Q7. The two lines of regression are given as follows:
8X – 10Y + 66 = 0
40X – 18Y = 214
The variance of X is 9
(i) Find the mean values of X and Y
(ii) Correlation Coefficient between X and Y
(iii) Standard Deviation of Y
Q8. Prove the following results:
(i) 𝑌̅ = 𝑌̅̂ i.e. the means of the actual Y values and the estimated Y values
are the same.
(ii) ∑ 𝑢̂𝑖 𝑋𝑖 = 0 i.e. the sum of the product of the residuals and the values
of the explanatory variable is 0.
Q9. Prove that 𝑦̂𝑖 = 𝛽̂2 𝑥𝑖 where 𝑦𝑖 𝑎𝑛𝑑 𝑥𝑖 denote deviations of Y and X values
from their respective means.
Q10. What do we mean by a linear regression model?
Q11. We lose nothing by normalizing the unobserved factors affecting the
dependent variable to have an average of zero in the population. Do you agree
with the statement? Explain.
Q12. Explain the following assumptions of the Classical Linear Regression
Model (CLRM):
(a) There is no correlation between any two error terms.
(b) Homoscedastic variance of error terms
Q13. A statistics instructor at a large western university would like to examine
the relationship (if any) between the number of optional homework problems
students do during the semester and their final course grade. She randomly selects
12 students for study and asks them to keep track of the number of these problems
completed during the course of the semester. At the end of the class each student’s
total number of problems solved is recorded along with their final grade.
The data is given in the following table:
Problems Solved Marks in Final
Semester
51 62
58 68
62 66
65 66
68 67
76 72
77 73
78 72
78 78
84 73
85 76
91 75
(a) Find the appropriate regression equation and interpret it.
(b) Use the regression equation to predict a student’s final course grade if 75
optional homework assignments are done.
(c) Use the regression equation to compute the number of optional homework
assignments that need to be completed if a student expects an 85.
(d) Find the coefficient of determination for the data and interpret it.
Q14. Prove that for a two-variable regression model 𝑅2 = 𝑟 2 where R is the
coefficient of determination and r is the coefficient of correlation between X and
Y.
Q15. Calculate the standard error of regression (SER) for the following data set:
X Y
1 2
2 4
3 5
4 4
5 5
