Suppose You Are Interested in Explaining Variation in Vacation Spending

question 13

Essay

Suppose you are interested in explaining variation in Vacation Spending in a sample of 12,486 men and women and that you estimate the sample regression function (standard errors in parentheses)

$\begin{array}{llcc} \text {Vacation Spending}_ { i } = &639.82 +& 0.22 \text {Income} { i } + &217.39 \text {College Graduate}_ { i }\\&( 134.62 ) &( 0.05 )&(91.43)\end{array}$

a)Which variable do you suspect could be responsible for heteroskedasticity in this model? Why? Explain.
b)How would you use the Goldfeld-Quandt test to determine whether heteroskedasticity is present? Explain.
c)Suppose you know that heteroskedasticity takes the form $$h ( x ) = \operatorname { Income } _ { i } ^ { 2 } \cdot \sigma ^ { 2 }$$
.How would you use Weighted Least Squares to correct for the heteroskedasticity? Explain.

---

Definitions:

SAM-e

S-Adenosyl methionine, a naturally occurring compound in the body involved in various biochemical processes, including mood regulation, and sometimes used as a dietary supplement for depression or joint pain.

Unipolar Depression

A mood disorder characterized by persistent sadness and lack of interest in activities, without manic episodes.

Norepinephrine Reuptake Inhibitors

Medications that block the reabsorption of the neurotransmitter norepinephrine, increasing its availability in the brain.

Selective Serotonin Reuptake Inhibitors

A class of drugs typically prescribed for depression and anxiety disorders, they work by increasing the levels of serotonin in the brain.