Week 3 Assignment

Homework #3

Part 1 (3 Points):

· Choose 3 of the 5 questions to answer.

· I will grade the first five questions you answer. For example: if you answer #1-7, I will grade #1-3 (the first three). If you answer #2-7, I will grade #2-4 (the first three).

· Each question is worth 1 points. Zero points will be assigned for questions without answer

Questions:

5.1, 5.3, 5.5, 5.7, 5.8

Part 2 (7 Points):

· All Calculations must be done in R using the excel document “Homework 3 Data.xlsx”

· Please provide the screenshot from R for each question.

1) Using the tab “GDP” (3 points)

a. Create a regression of GDP (y-variable) versus time (x-variable).

b. Create a confidence interval and interpret the confidence interval.

c. Is time statistically significant? Explain how you know using p-values and #2.

d. The Financial crisis was from 2008-01-01 to 2009-07-01. Create a dummy variable for this time period. Regress the data. Interpret the coefficient on the dummy variable. What is the problem?

2) Look at the tab “Student_Scores.” The test score is the ACT college entrance score at a given school in Massachusetts. There is healthy competition in the school and the girls think they are smarter than the boys. Using regression with a dummy variable, what do you conclude? (1 points)

3) Look at the tab “SP_UE.” The SP500 variable is the S&P500 index, which is a measure of equity. The “UNRATE” variable is the unemployment rate. (3 points)

a. Using S&P500 as the Y variable, create a regression of the two variables.

b. Plot the residuals. Is there heteroskedasticity?

c. Rerun the plot with heteroskedastic robust standard errors.

d. Describe what happened to the variables.