DATA ANALYSIS FOR ECONOMICS

MOCK MID TERM

Remark: this is not a complete mid-term exam, but different exam type questions
from previous mid-terms to practice.

QUESTION 1. Using the Household expenditure survey for 2017, you get the following
information for 96 Spanish households:
Savings Annual savings (euros)
Income Annual income (euros)
Source: INE, 2017.

Savings versus Income

7000
Y = 422. + 0.0822X

6000

5000

4000

3000
Savings

2000

1000

-1000

-2000

-3000
0 5000 10000 15000 20000 25000 30000
Income

Figure 1

OLS regression line: 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠

� 𝑖𝑖 = 422 + 0.0822𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖

Answer the following questions:

a) According to Figure 1, by how much do average annual savings increase when annual
income increases by 1000 euros? Explain why some actual values for savings fall
below zero.
b) According to Figure 1, in a SLRM of savings on income, which of the Gauss Markov
assumptions is very likely to be violated? Explain
c) Given the OLS regression, compute the residual for a household with annual income=
5000 euros and annual savings = 863 euros.

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QUESTION 2 A group of researchers has conducted a survey that contains information

on smoking behavior and other variables for a random sample of 807 single adults from the
United States. The following information is available:

Variable Description
cigs Average number of cigarettes smoked per day
cigprice State cigarette price, cents per pack
educ Years of schooling
age Age in years
income Annual income, (thousand dollars)

Three different models have been estimated using cigs as dependent variable.
Model 1 Model 2 Model 3
const 10.67 9.565 14.74
(6.173) (6.210) (6.543)
cigprice -0.032 -0.032 -0.032
(0.102) (0.102) (0.102)
income 0.081 0.118
(0.053) (0.056)
educ -0.376
(0.169)
age -0.041
(0.028)
n 807 807 807
Adj. R2 0.005 0.006 0.010
SSR 151734 151294 150157
Note: Standard errors in parentheses

Answer the following questions:

a) Which is the unit of analysis in this dataset and the sample size?
b) Postulate the population model of the SLRM
c) Write the OLS line of the SLRM.
d) Does the price of cigarettes explain a large fraction of the variability in cigarettes
smoked across individuals? Explain.
e) Interpret the estimated coefficients from Model 2.
f) Compare the estimated slope parameters associated to cigprice between the three
models. Could you give an explanation for this happening?
g) Robert is 25 years-old and has completed 14 years of schooling. His annual income
is around 26 thousand dollars and lives in Iowa where the price of the pack of

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cigarettes is 58 cents. Predict Robert’s number of cigarettes smoked per day (integer
number) using Model 3.
h) It has been argued that, controlling for other factors, individuals tend to give up
smoking as they get older. Is this result consistent with the regression in Model 3?
Explain
i) Which would be your preferred Model? Explain

QUESTION 3

A group of researchers from the World Bank Development Department conducted a study
in 2019 on the main determinants of human development across countries. For that
purpose, they collected information of an Index provided by the United Nations called
Human Development Index (HDI) ranging the level of development from 0 (the worst)
to 1 (the best). They ended up with a sample of 169 countries around the world. All the
information they gathered for the different countries is described in Table 1.

Table 1. Variables Description

Name Description
hdi Human Development Index (being 0 the worst and 1 the best)
educ Mean years of schooling
gdppc GDP per capita (in thousand dollars)
imr Infant Mortality rate (per 1,000 live births)
unem Total Unemployment rate (% of the labor force)

The descriptive statistics are presented in Table 2.

Table 2. Summary Statistics

Variable Mean Coeff of Variation Minimum Maximum

hdi 0.702 0.214 0.377 0.954

educ 8.498 0.364 1.586 14.132

gdppc 18.49 1.068 0.660 112.53

imr 22.49 0.895 1.600 87.600

unem 7.239 0.786 0.100 30.200

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1) Consider the following OLS regression line:

� 𝑖𝑖 = 𝛽𝛽̂0 + 0.045𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑖𝑖
ℎ𝑑𝑑𝑑𝑑

Choose the correct answer for the OLS estimator of the intercept, 𝛽𝛽̂0
a. 0.319
b. 1.091
c. 0.045
d. 8.466

2) Consider the OLS regression line given below.

� 𝑖𝑖 = 𝛽𝛽̂0 + 0.045𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑖𝑖
ℎ𝑑𝑑𝑑𝑑

If the Total Sum of Squares of educ equals 160.62 and the unbiased estimator of the
error variance equals 2.89, the standard error of the slope is equal to
a. 0.134
b. 0.018
c. 55.43
d. 7.44

3) Consider the following OLS regression line

� 𝑖𝑖 = 0.368 + 0.035𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑖𝑖 + 0.002𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑖𝑖

ℎ𝑑𝑑𝑑𝑑

𝑛𝑛 = 169 𝑅𝑅2 = 0.852

The fitted value of hdi for a country with mean values for both educ and gdppc is

a. 0.368
b. 0.702
c. 0.954
d. 0.377

4) Consider the following OLS regression line

� 𝑖𝑖 = 0.368 + 0.035𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑖𝑖 + 0.002𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑖𝑖

ℎ𝑑𝑑𝑑𝑑

𝑛𝑛 = 169 𝑅𝑅2 = 0.852

Qatar is the richest country in the sample. The mean years of schooling in Qatar is 9.67 and it
presents a high level of human development index (its hdi equals 0.85). The OLS residual for
Qatar is:

a. -0.08
b. 0.08

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c. 0.15
d. -0.15

5) Consider the following OLS model

log�
(ℎ𝑑𝑑𝑑𝑑)𝑖𝑖 = 0.108 + 0.032𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑖𝑖 + 0.117 log(𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔 )𝑖𝑖
𝑛𝑛 = 169 𝑆𝑆𝑆𝑆𝑆𝑆 = 0.46 𝑆𝑆𝑆𝑆𝑆𝑆 = 5

The adjusted R-squared is equal to

a. 0.908
b. 0.906
c. 0.46
d. 0