ECON 322 Introduction to Econometrics
Instructor: Dr. Simon Sheng
Homework #2

1. Briefly explain each of the following terms used in testing a hypothesis.
(1) One-sided test and two-sided test
(2) Type I and Type II error
(3) Significance level

2. List and interpret four basic assumptions in the simple linear regression model.

3. Describe the difference between each pair:
(1) iY and iYˆ
(2) iu and iuˆ
(3) The population regression line and the sample regression line

4. Exercise 4.3

5. Exercise 4.6

6. Exercise 5.7

7. Exercise 5.8

8. Download the dataset Output.xls. Define x=labor hours of work and y=output. Using
Stata to answer the following questions:
(1) Plot them first. Is there a direct or inverse relationship?
(2) Use OLS to determine the intercept and slope coefficient in the sample. Interpret your
slope coefficient.
(3) Write down the sample regression line.
(4) Calculate the standard error of regression.
(5) Do labor hours of work explain most of variation in output?
(6) Calculate the correlation coefficient. Is there a strong relationship between output and
labor hours of work?
(7) Calculate RSS, ESS and TSS.
(8) Construct a 95% confidence interval for the slope of the population regression line.
(9) Test whether the true value of the slope of the population regression line is equal to 1
or not at the 5% significance level.
(10) Predict the value of y0 if x0 = 7.5.