Introduction to Econometrics

Prof. Brendan Kline

SAMPLE Midterm Exam #2 Suggested Solutions

1. (a) −0.1660913. Each additional minute worked during a week reduces the time slept per
week by about 0.16 minutes on average, holding fixed age, gender, and race.

(b) Yes. (See note for the ways to “show your work.”)

Exam note: There are two ways to answer this, given the available information. First, note that
the 95% confidence interval does not include 0. Therefore, we reject the null hypothesis that
βtotwrk = 0 at the 5% significance level. Alternatively, second, the t-statistic is approximately
−.166
0.018
. If we round the standard error to 0.02, and the estimate to −.16, this is approximately
−8. (In fact the t-statistic is actually −9.22.) The absolute value of this is obviously larger
than the critical value of 1.96, so we reject the null hypothesis.

(c) −56.88764. Black people on average sleep about one hour less per week (more specifically,
56.9 minutes less), compared to non-black people (which would include a variety of racial
groups), holding fixed the number of minutes worked, age, and gender.

(d) No. (See note for the ways to “show your work.”)

Exam note: There are three ways to answer this, given the available information. First, note
that the 95% confidence interval includes 0. Therefore, we do not reject the null hypothesis that
βblack = 0 at the 5% significance level. Alternatively, second, the t-statistic is approximately
−56.8
72.83
. In absolute value, this is obviously less than 1. Therefore, the absolute value of this is
obviously smaller than the critical value of 1.96, so we do not reject the null hypothesis. Finally,
third, the p-value is 0.435, which is greater than 0.05, so we do not reject the null hypothesis.

(e) No. (See note for the ways to “show your work.”) A coefficient of −60 would mean that
black people sleep exactly one hour less per week on average than non-black people, holding
fixed the number of minutes worked, age, and gender.

Exam note: There are two ways to answer this, given the available information. First, note that
the 95% confidence interval includes −60. Therefore, we do not reject the null hypothesis that
βblack = −60 at the 5% significance level. Alternatively, second, the t-statistic is approximately
−56.88+60 3
72.83
≈ 72.83 . The absolute value of this is obviously much smaller than the critical value of
1.96, so we do not reject the null hypothesis.

(f) [−0.071468, 5.40429]. Unsimplified: The lower bound is 2.666409 − 1.96(1.396876) ≈

−0.0761528 and the upper bound is 2.666409 + 1.96(1.396876) ≈ 5.40429. This number might
vary depending on how you round (if at all).

(g) The simplest concern is that this might violate MLR.3 because it might introduce a perfect
linear relationship among the explanatory variables. In particular, if there were only black
1
2

people and white people, then black +white = 1, so there would be a perfect linear relationship.
But, obviously, there are many other racial groups. The condition required of the data is that
there is data on people in these other racial groups.

(h) These estimates mean that a black person sleeps 50 minutes less per week than a white
person on average, holding fixed the number of minutes worked, age, and gender. This is because
the coefficient on black means that black people sleep 61 minutes less than the reference group
(which is non-black and non-white people), and the coefficient on white means that white
people sleep 11 minutes less than the reference group, everything holding fixed the number of
minutes worked, age, and gender. So, black people sleep 50 = 61 − 11 minutes less per week
than white people, on average, holding fixed the number of minutes worked, age, and gender.

(i) This would violate homoskedasticity (MLR.5) and therefore also the normality assump-
tion (MLR.6), since MLR.6 implies MLR.5. The homoskedasticity assumption implies that
V ar(y|x1 , . . . , xk ) = σ 2 a constant, that does not depend on the x’s. (We saw this in class.)
But the colleague is directly claiming that this is not true.

(j) This fact implies that the regression model violates MLR.6. MLR.6 implies that, in this
example, sleep|(totwrk, age, male, black) is normally distributed. (We saw this in class.) One
feature of a normal distribution is that no matter what the mean and variance is, there is always
a positive probability of having negative values. But, it is not logically possible for sleep to
be negative. So, MLR.6 cannot be true.
1
(−10.19403)
(k) 2 √
. Since, plugging in the estimates, E(sleep|totwrk, age, male, black) = 3574.998−
√
totwrk
10.19403 totwrk + 2.795636age + 60.42003male − 50.03023black, the estimated marginal effect
is just the derivative of this with respect to totwrk, which gives the stated answer.
1
(10.19403)
(l) Decreases. The absolute value of the marginal effect is 2 √totwrk . This is smaller when
totwrk is bigger, so the absolute value of the marginal effect decreases with totwrk.

(m) The null hypothesis of no effect is βsqrttotwrk = 0, because then totwrk does not appear in
the equation for sleep.

(n) 20βage = βblack . Since each year of age (holding fixed the other explanatory variables) has
the effect of βage , the effect of 20 years of age has the effect of 20βage . And the effect of being
black compared to being non-black is just βblack . So for these two effects to be equal, then the
null hypothesis is 20βage = βblack .

(o) lincom 20*age - black or test 20*age == black

(p) 3574.998 − 10.19403(50) + 2.795636(35) + 60.42003(0) − 50.03023(1)

(q) lincom cons + sqrttotwrk*50 + age*35 + male*0 + black*1

(r) βmale = 60. The coefficient on male is the difference in sleeping in minutes per week between
men and women (holding fixed all of the other explanatory variables); so the difference is one
hour per week, if the coefficient is 60.
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60.420003−60
(s) No. The t-statistic is 34.36072
≈ 0, which is obviously less than any critical value, so we
do not reject.

(t) −60.42003. The coefficient on male is the difference in sleeping in minutes per week between
men and women (on average, holding fixed all of the other explanatory variables). Similarly,
the coefficient on female is the difference in sleeping in minutes per week between women and
men (on average, holding fixed all of the other explanatory variables). So they must logically
be the negative of each other.

2. (a) Not enough information to say. Based on this information, the p-value must be less than
0.05, but this does not tell us whether it is less than 0.01 (the criterion for rejecting at the 1%
significance level).

(b) No. Based on this information, the p-value must be greater than 0.05, and this tells us that
it is greater than 0.01 (the criterion for rejecting at the 1% significance level).

(c) Yes. Based on this information, the p-value must be less than 0.01, and this tells us that it
is less than 0.05 (the criterion for rejecting at the 5% significance level).

(d) Not enough information to say. We cannot extrapolate what we learn from a test about β1
to a test about β2 .

(e) No. Based on how confidence intervals and testing hypotheses relate (as covered in class/book),
rejecting the null hypothesis at the 5% significance level is equivalent to 0 not being in the 95%
confidence interval.