Economics 421/521

Winter 2006

Homework #3

[PDF FILE]

1. Suppose you estimate the following dummy variable model relating the consumption expenditures (C) to disposable income (Y) in a cross-section of individuals:

C_{i}= 4000 + 5000 D_{1i}+ 9000 D_{2i}+ .92Y_{i}+ .03D_{1i}Y_{i}+ u_{i}

(325) (1500) (6000) (0.21) (.009)

R2 = 0.84, n = 35

where, Y_{i}= Disposable income in thousands D_{1i} = 1 for
women, 0 otherwise. D_{2i} = 1 if over 45 years of age, 0 otherwise.

(a) Is consumption different for women? Specifically, is there a significant difference in the slope or the intercept? Interpret your results.

(b) Is consumption different for those over 45? Explain.

2. Problem 9.22 parts a and b only. [**Data set**]

3. Problem 9.23 part a only.

## Comments