## Assignment #2

We will continue to use the data file eaef01.dta. So open up Stata and

load the DO file which we created during the lab class #1, to which we are now going to add some

additional instructions.

1. Calculate the correlation between
*EARNINGS *and *S*.

Now run a regression of

* **EARNINGS _{i} =α+ β*

*S*+ε

_{i}_{i}(1)

(a) What is the interpretation of
the coefficient on the *S *variable?

(b) Test the hypothesis β= 0**.**

(c) What is the TSS of the model?

(d) What is the p-value of the test undertaken in (b)

(e) Construct a 95% confidence interval for the coefficient on β.

(f) What is the error variance for this model?

(g) What is the relationship between
the *R*2 from equation
(1) and correlation between *EARNINGS *and *S*?

(i) Use the Test options in Stata to test the null hypotheses that the coefficient on

*S *is 0.25 at the 5% significance level.

(k) Explain the meaning of R^{2 }and
F statistics.