(Continuation from Chapter 4, Number 3)You Have Obtained a Sub-Sample $\widehat {E a m }$

question 26

Essay

(continuation from Chapter 4, number 3)You have obtained a sub-sample of 1744 individuals from the Current Population Survey (CPS)and are interested in the relationship between weekly earnings and age. The regression, using heteroskedasticity-robust standard errors, yielded the following result: $\widehat {E a m }$ = 239.16 + 5.20×Age , R² = 0.05, SER = 287.21.,
(20.24)(0.57)
where Earn and Age are measured in dollars and years respectively.
(a)Is the relationship between Age and Earn statistically significant?
(b)The variance of the error term and the variance of the dependent variable are related. Given the distribution of earnings, do you think it is plausible that the distribution of errors is normal?
(c)Construct a 95% confidence interval for both the slope and the intercept.

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Definitions:

Supplemental Security Income

A United States government program providing financial assistance to elderly, blind, or disabled individuals.

Disabled

Individuals having a physical or mental condition that significantly limits their movements, senses, or activities.

Labor Earnings

Income received by workers for their labor or services, typically measured in terms of wages, salaries, or commissions.

Negative Income Tax

A system of social welfare that provides income to individuals or families below a certain income level, effectively supplementing their income.