describes how people’s levels of education are distributed at different levels of wages.
economics
Description
Workshop 2: Topics 8-12
Student
name:________________________________ID number:_________________
Section A. Multiple choice
questions: [40 marks]
Indicate
the correct answer in the box provided.
The following model relates a person i’s hourly wages (measured
in £’) to his/her level of education (measured in years of
schooling)
[1]
1.
In model [1], the conditional probability density function
(CDF) of 
given 
f(|):
|
a. describes how people’s
levels of education are distributed at different levels of wages. |
|
|
b.
gives
the probability of wages regardless of the level of education. |
|
|
c. gives the probability of
the levels of education when the value of wages is fixed at a specific value. |
|
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d.
describes
how people’s wages are distributed at each level of education. |
|
2. In model
[1], the term 
is:
|
a.
An estimator of the effects of education on hourly wages. |
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b. An unknown fixed parameter that needs to be estimated. |
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c. An estimate of the symmetric relationship between education
and wages. |
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d. A random
variable with an unknown probability density function. |
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3. With
reference to model [1], the assumption of homoscedasticity implies that:
|
a. the dispersion
of the values of wages about their mean is the same for all levels of
education. |
|
|
b.
the dispersion of the levels of education about their mean
is the same for all values of wages. |
|
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c.
the conditional probability distribution of wages given
education increases at a constant rate with the levels of education. |
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d. the
expected value of wages is the same for all levels of education. |
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4.
In model [1], a high variance of the error term implies that
the OLS estimators of 
and 
are:
|
a.
inconsistent |
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b.
less disperse |
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c. less precise |
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d. unbiased |
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5. An
estimator of a population parameter
is unbiased if:
|
a.
it has the smallest variance amongst all unbiased
estimators. |
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b. it has the smallest variance amongst all linear
estimators. |
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c. its expected value is equal to the population parameter. |
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d. its
variance decreases as the sample size increases. |
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[8 marks each question]
Section
B [60 marks]
You are interested in investigating the
relationship between wages and experience in the UK using the following linear
regression model:
[2]
Where 
denotes a person i’s hourly earnings (measured in natural
logarithm
and 
denotes years of experience.
In order to estimate model [2], you collected
information on hourly earnings and years of experience for 1000 randomly
selected individuals in the UK and obtained the following OLS estimation using
STATA:
Using the
above regression output:
a)
Construct a 95% confidence
interval for and interpret it.
[20 marks]
