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Consider a 45-year-old in the sample with weekly earnings

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You have obtained a sub-sample of 1744 individuals from the Current Population Survey (CPS) and are interested in the relationship between weekly earnings and age. The regression yielded the following result:
Earnings = 239.16 + 5.20Age, R2 = 0.05, SER = 287.21 (42.71) (2.71)
where Earnings and Age are measured in dollars and years respectively.

a. Interpret the intercept.

b. Interpret the coefficient on Age.

c. The average age in this sample is 37.5 years. What are average weekly earnings in the sample?

d. At a significance level of 5%, we would say that the slope coefficient is not statistically significantly different from zero. Calculate the relevant confidence interval to show this.

e. Consider a 45-year-old in the sample with weekly earnings of $1,000. Calculate the residual for this person. Explain what your answer means in words.

f. Interpret R2.

g. Give an example of a factor that may be causing omitted variable bias. Based on the direction of the bias, after adding the omitted variable, will the coefficient on Age in this multiple regression be > 5.20 or < 5.20?

Reference no: EM13578664

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