how much of the variation in savings can be explained by the estimated model

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

1. (a) For each of the variables, what is the average, the standard deviation, the minimum value, and the maximum value in your data set? (b) What is the number of observations in your data set?

2. (a) Calculate the correlation coefficient between sav and inc. Is there a strong relationship between these two variables?

(b) Construct a graph that plots savings (on the vertical axis) against income (on the horizontal axis). Does the visual evidence support your answer in part (a)?

(c) Generate a histogram for savings. Comment on the distribution of savings.

3. (a) Fit a simple linear regression (SLR) of savings on income, and report the regression results.

(b) Is income a statistically significant determinant of savings at the 10% level?

(c) How much of the variation in savings can be attributed to the variation in income?

(d) What is the effect on savings of an extra £1,000 of income?

(e) What is your predicted value of savings at the mean income level?

4. (a) Fit a multiple linear regression (MLR) of savings on the other five variables (age, nchild, inc, grad and hols), and report the regression results.

(b) Which of the regressors are individually significant at the 10% level? And at the 5% level?

(c) How much of the variation in savings can be explained by the estimated model?

(d) What is the effect on savings of an extra £1,000 of income? What is your predicted value of savings at the mean income level? Compare your results with those in the SLR model.

(e) Carry out a test of the joint significance of the variables age, nchild, grad and hols. Which model do you prefer – the SLR model in the previous question, or the MLR model in this question?

(f) Carry out a RESET test in the MLR model – is there evidence of functional form misspecification? (g) Carry out a test for heteroskedasticity in the MLR model – is there evidence of heteroskedasticity? 

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