Introductory Econometrics: A Modern Approach 6th Edition by Jeffrey M Wooldridge

Exercise 2

Using the data in GPA2.RAW on 4,137 college students, the following equation was estimated by OLS:

= 1.392 - .0135 hsperc + .00148 sat n = 4,137, R2 = .273,

where colgpa is measured on a four-point scale, hsperc is the percentile in the high school graduating class (defined so that, for example, hsperc = 5 means the top 5% of the class), and sat is the combined math and verbal scores on the student achievement test.

(i) Why does it make sense for the coefficient on hsperc to be negative?

(ii) What is the predicted college GPA when hsperc = 20 and sat = 1,050?

(iii) Suppose that two high school graduates, A and B, graduated in the same percentile from high school, but Student A's SAT score was 140 points higher (about one standard deviation in the sample). What is the predicted difference in college GPA for these two students? Is the difference large?

(iv) Holding hsperc fixed, what difference in SAT scores leads to a predicted colgpa difference of .50, or one-half of a grade point? Comment on your answer.

Step 1 of 4

(i)

The variable hsperc is defined so that the smaller it is, the lower the student’s standing in high school. Everything else equal, the worse the student’s standing in high school, the lower is his/her expected college GPA.