ECON107 ASSIGNMENT 1

Answer Key
Question 1 (50 marks)

1. X t 2 = 32+22+12+(-1)2+02 = 15

X t Y t = (5)(3)+(2)(2)+(3)(1)+(2)(-1)+(-2)(0) = 20

X t = 3+2+1+(-1)+0 = 5

Y t = 5+2+3+2+(-2) = 10

= =1
5

= =2
5

2. 1 = n 2 = (5)(20)(5)(10) = 1

n ( )2 (5)(15)(52 )
R

0 =
1 . = 1

3. 5
Yt
4

2
(1,2)

0
-2 0 2 4
Xt
-1

-2
4. 1 : An unit increase in X leads to an average of 1 unit
increase in Y

0 : an average value of Y when X is 0.

5. See above.
6. 5=1 = 5=1( )
0
= 5=1( 1 . )
= 1+(-1)+1+2+(-3) =0

5=1( )2
Standard error of estimate, =
2

12 +(1)2 +12 +22 +(3)2

=
52

= 2.309

Coefficient of determination, r2 =

5 ( )2
= =1
5 2
=1( )
10
=
26

= 0.385

38.5% of the total variation in Y t is explained by the regression

model (or by X).
7. H 0 : 1 =0
H 1 : 1 0

1 1 1 1 ) 2
(

t= 1 ) =
~ t(n-k-1) ,
(

1 ) =
where ( = 0.7303. So t=1.3693
2

Reject H 0 if |T| > t 0.05 = 2.35336

 Do not reject H 0

Question 2 (20 marks)

1. 1 = n 2 = ( )( )

n ( ) 2 2
( )
R

1 = ( )(+1(+1))
Add 1 to the dependent variable: new 2 ( )

( )( )
=
( )2

1 .
There is no change in
0 =
1 .

0 = + 1
Add 1 to the dependent variable: new 1 .

0 will increase by 1 unit.

1 = n 2 = ( )( )
2.
n ( )2 2
( )
R

( +1(+1))( )
1 =
Add 1 to the independent variable: new
( +1(+1))2

( )( )
=
( )2

1 .
There is no change in

0 =
1 .

0 =
Add 1 to the independent variable: new 1 ( + 1)

1 .
= 1

0 will increase by
1 unit.
Question 3 (30 marks)

( )( )
1 =

( )2
1 is then
Since there is no variation in X, ( )2 = 0.
undefined. As a result, residuals are not defined. So are RSS and
ESS. Therefore, r2 is naturally undefined as well.

The person is not justified as the regression model is not valid.

If observations were lined up at 45 from origin, =

1 = 2

= 2 =1

R2 =

)2
(
= ( 2
)

0 +
( 1 . )2
= 0 =0 as intercept is at origin)
(
( )2

( )2
= ( )2

( )2
= ( 2
)

=1

Regression line will be a perfect fit.