Assignment – 2

1.)
a.) Observations are 16.
b.) quantitative variables.
2.)
a.) Yes, but if there is heteroscedasticity, it will make the error term, F and T-tests invalid
and OLS won’t be the best estimator
b.) Scatter plot of Residuals-squared and Predicted Y to see if the residuals are constant or
not. Some tests can be used such as Goldman test and White test to detect
heteroscedasticity.
3.)
a.) I expect a positive relationship between GNP & Annual Salary.
b.) I expect a negative relationship between unemployment rate & Annual Salary.
c.) I expect a positive relationship between Prime rate & Annual Salary.
4.)
a.) Annual Salary = 5962 + 4.88GNP + 2.36Housing Starts – 819.12 Unemployment +
12Prime rate – 851.39 Customer Line Gains + u
b.) The intercept is 5962, B1 is 4.88 meaning when GNP increases by 1, Annual salary will
increase by 4.88$. B2 is 2.36 meaning that when Housing Starts increases by 1, Annual
salary will increase by 2.36$. B3 is -819.12 which means when unemployment rate
increases by 1%, Annual Salary will decrease by 819.12. B4 is 12 which means when
prime rate increase by 1%, Annual Salary will increase by 12. B5 is -851.39 when
customer line gains increase by 1%, Annual Salary will decrease by 851.39.
c.) Prime rate isn’t significant
Q5.) Excel file

Q6.) Null hypothesis: heteroscedasticity doesn’t exist

Alternative hypothesis: Heteroscedasticity is present
7.)
a.) Excel file
b.) Excel file
c.) Treatment by Log and Weighted least squares both are in sheet 3
d.) Yes