2. (30 points) Consider an equation to explain rent rates (rent) in a college to

Question

2. (30 points) Consider an equation to explain rent rates (rent) in a college town. Using the data, the following equation is obtained by OLS: 0.043 + 0.066 (0.844) (0.039) 0.507 log(arginc) + (0.081) 0.0056 pctstu (0.0017) log(rent)= log(pop) + n 64, R-= 0.483 where rent is the average monthly rent paid on rental units in a college town in the United States, pop is the total city population, avginc is the average city income. and pctstu is the student population as a percentage of the total population.

Explanation / Answer

e) pctstu

TS = (0.0056)/0.0017 = 3.294

df= n-k-1= 64-3-1 = 60

t-critical for 10 % level of significance = 1.671

since TS > t-critical

the variable is significant

f) point estimate = 0.066 , se = 0.039

t-critical for 99 % confidence interval is 2.660

hence confidence interval is

(0.066 - 2.66 * 0.039,0.066 + 2.66 * 0.039)

=(-0.03774 , 0.16974)

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