Question

Consider the following output: Y = 0.2033 + 0.6560X se = (0.0976) (0.1961) R^2 = 0.397 ESS = -0.05

Answer
Step 1/3
a) Interpretation of the regression: The regression equation is Y = 0.2033 + 0.6560X,
where Y represents the labor force participation rate (LFPR) of women in 1972, and X
represents the LFPR of women in 1968. The coefficient of X (0.6560) indicates that for
every one percentage point increase in the LFPR of women in 1968, the LFPR of women
in 1972 is expected to increase by 0.6560 percentage points, on average. The constant
term (0.2033) represents the predicted LFPR of women in 1972 when the LFPR of women
in 1968 is zero. The R-squared value (0.397) indicates that 39.7% of the variation in the
LFPR of women in 1972 can be explained by the LFPR of women in 1968.

Step 2/3
b) Hypothesis testing: We want to test the hypothesis H0: β2 = 1 against H1: β2 > 1. To
do this, we can use a t-test because we have the standard errors for the coefficients and
the sample size is small (19 cities). The test statistic is calculated as follows: t = (β2 - 1) /
SE(β2) = (0.6560 - 1) / 0.1961 = -1.754 Using a t-table with 18 degrees of freedom (19
cities - 1), we find the critical value for a one-tailed test at the 5% significance level is
approximately 1.734. Since the test statistic (-1.754) is less than the critical value, we fail
to reject the null hypothesis H0: β2 = 1. This means that we do not have enough evidence
to conclude that the LFPR of women in 1972 increases by more than one percentage
point for every one percentage point increase in the LFPR of women in 1968.

Answer
c) Mean LFPR in 1972 and 95% confidence interval: Given that the LFPR in 1968 was
0.58, we can use the regression equation to predict the mean LFPR in 1972: Y = 0.2033 +
0.6560 * 0.58 = 0.5829 (or 58.29%) To establish a 95% confidence interval for the mean
prediction, we need to calculate the standard error of the prediction. The formula for the
standard error of the prediction is: SE(Y) = sqrt[SE(β1)^2 + (X * SE(β2))^2] SE(Y) =
sqrt[(0.0976)^2 + (0.58 * 0.1961)^2] = 0.1264 Now, we can calculate the 95% confidence
interval using the t-distribution with 18 degrees of freedom and the standard error of the
prediction: Lower bound: Y - t * SE(Y) = 0.5829 - 1.734 * 0.1264 = 0.3619 (or 36.19%)
Upper bound: Y + t * SE(Y) = 0.5829 + 1.734 * 0.1264 = 0.8039 (or 80.39%) Thus, the

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