ECMT2150 S2 2022 – Canvas Quiz
PART B [30 marks]
Empirical Exercise Using STATA: Estimation, Interpretation, and Inference

Questions related to this part will be worth 30 marks. There will be a mixture of numerical
and short answer questions.

REMINDER: I encourage you to work through the following analysis of the data in STATA or
another software package before doing the quiz. There are no trick questions, so if you have
completed each of the following questions, kept a copy of your output and made a note of
your answers, there will be no surprises when you are taking the quiz. You should not need
to use STATA during the quiz at all. The quiz is not timed, so you can leave and come back to
the quiz if you need to.
Accessing the data: You can download the data from the ‘Canvas Quiz Instructions’ page
where you found these instructions. Go to the ‘Assignments’ area on our Canvas site:
https://canvas.sydney.edu.au/courses/44341/assignments
Note: there are multiple versions of the dataset. Each student will have a link to just one of
these datasets. I have edited the data for each version to make them different enough to
prevent collusion. You need to answer the questions using your own data. If you answer
questions using one of your classmate’s datasets, you will answer questions in the quiz
incorrectly and you will lose marks or be referred to the academic integrity office.
Data and research question description
We are interested in assessing the effect of school resources, as measured by school spending
per enrolled student, on student reading ability, as measured by the proportion of Year 6
students who pass a reading comprehension test. To investigate this, we will analyse a
random sample of schools across New South Wales and Victoria in 2014. The dataset,
‘reading_literacy.dta’, contains 933 observations on the following four variables:
• 6: per cent of Year 6 students who pass a reading comprehension test
• ℎ: Total school expenditure (in dollars)
• : Number of students enrolled at the school
• : per cent of the student population from a low socio-economic background

Questions:
1) Generate the following extra variables that you will need to use in subsequent
analysis: ℎ which is the natural logarithm of school expenditure
per student enrolled at the school, and which is the natural logarithm
of the total number of students enrolled at the school.
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2) [2 marks] Compute the mean, standard deviation, minimum and maximum values for
6, ℎ, and .

3) [3 marks] Estimate the following multiple linear regression model:

6 = 0 + 1ℎ + 2 + (1)

Report the results (i.e. estimates, standard errors and model fit).

4) [3 marks] What is the interpretation of 1? What would you expect the sign of this
coefficient to be? Explain your answer.

5) [3 marks] Test the hypothesis that 1 = 0 against the alternative that 1 ≠ 0 using a
10% significance level. What do you conclude? Make sure to follow all the steps when
doing your hypothesis test.

6) [3 marks] Now estimate a new multiple regression model that includes an extra
explanatory variable to account for socio-economic status of the school student
population:

6 = 0 + 1ℎ + 2 + 3 + (2)

What share of the variation in the percentage of Year 6 students who pass a reading
comprehension test does the model explain? What does this measure of goodness-
of-fit tell us about the reliability of our results?

7) [4 marks] What happened to the coefficient on ℎ when you added
the additional explanatory variable to the model? Explain why there might be
a difference between the two estimates for 1 in models (1) and (2).

8) [4 marks] What happened to the standard error of the coefficient on
ℎ when you added the additional explanatory variable to
the model? Explain why there might be a difference between the two standard error
estimates for 1 in models (1) and (2). [Hint: Review the formula for the variance of an
MLR estimator]

9) [4 marks] In your opinion, which model (1) or (2) is more likely to measure the causal
effect of school funding on student reading ability? Explain your reasoning.

10) [4 marks] Create a file in STATA or in Word that documents your work (commands and
output) in STATA. This should be no more than 4 pages long. You will need to upload
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this file (as a PDF) at the end of the quiz in the Assignment dropbox. Quizzes that are
missing this file will be penalized.
There are various of ways to do this:
• You could use a STATA log file that you could later save as a PDF to upload
• You can copy paste from the log file into a Word doc and convert to a PDF
• You can highlight the relevant output in the Results window, then right clicking
to copy either as text or as a picture. Then paste into a word document and
save as a PDF.
Whatever method you use, save the PDF document somewhere you can find it, so you
can easily upload it while you are taking your quiz.