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

Exercise 23

In Example 7.2, let noPC be a dummy variable equal to one if the student does not own a PC, and zero otherwise.

(i) If noPC is used in place of PC in equation, what happens to the intercept in the estimated equation? What will be the coefficient on noPC? (Hint: Write PC = 1 _ noPC and plug this into the equation

(ii) What will happen to the R-squared if noPC is used in place of PC?

(iii) Should PC and noPC both be included as independent variables in the model? Explain.

Equation

Step 1 of 3

i.

If one use noPC in place of PC, then the equation in example 7.2 will transform into the following equation,

It is given that the intercept term in original equation is 0.157 and coefficient estimate of noPC is 1.26, therefore, the new intercept and coefficient estimate will be the following,