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Coefficient Estimate on The Interaction Practice Problems

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Solutions to the Additional Practice Problems 1. (a) $23,400 (recall that Price is measured in $1000s). (b) In this case BDR = 1 and Hsize = 100. The resulting expected change in price is 23.4 + 0.156  100 = 39.0 thousand dollars or $39,000. (c) The loss is $48,800. (d) From the text 𝑅 = 1 − (1 − 𝑅 ), so 𝑅 = 1 − (1 − 𝑅 ), thus, R2 = 0.727. 2. (a) There are other important determinants of a country’s crime rate, including demographic characteristics of the population. (b) Suppose that the crime rate is positively affected by the fraction of young males in the population, and that counties with high crime rates tend to hire more police. In this case, the size of the police force is likely to be positively correlated with the fraction of young males in the population leading to a positive value for the omitted variable bias so that 𝛽 > 𝛽 . 3. Yes, the dependent variable is measured in the same units. 4. No, the dependent variable is measured in different units. 5. 𝑇𝑒𝑠𝑡𝑆𝑐𝑜𝑟𝑒 = 𝑏 + 𝑏 𝐻𝑖𝑆𝑇𝑅 + 𝑏 𝐻𝑖𝐸𝐿 + 𝑏 (𝐻𝑖𝑆𝑇𝑅 × 𝐿𝑜𝐸𝐿) 𝑇𝑒𝑠𝑡𝑆𝑐𝑜𝑟𝑒 = ...
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Awesome! Perfect study aid.

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