Answer Happy

Consider the model

WAGEi = β1 + β2EDUCi + ui (2)

where i indexes the individual, WAGEi

is earnings per hour in U.S. Dollars

for individual i, EDUCi

is years of education for individual i, and ui

is a

stochastic disturbance term for individual i.

Based on a random sample of 1,200 observations, the model is estimated

and the results shown in Equation 3 obtained. The standard errors (s.e.) are

shown beneath each estimated coefficient.

WAGE \i

(s.e.)

= −10.4

(1.9624)

+ 2.3968

(0.1354)

EDUC; n = 1, 200; R

2 = 0.2073; t(0.975,1198) = 1.96195.

(3)

a. Interpret the estimated coefficient for EDUC. (2 marks)

b. Interpret the R2 value. (2 marks)

c. Test the statistical significance of the estimated coefficient for EDUC us-

ing:

i. The t−test approach. (4 marks)

ii. The confidence interval approach. (4 marks)