Your friend has an on-campus job making telephone calls to alumni asking for donations to your college’s annual fund, and she wonders whether her calling is making any difference. In an attempt to measure the impact of student calls on fund raising, she collects data from 50 alums and estimates the following equation:

Where:

GIFT_i = the 2016 annual fund donation (in dollars) from the ith alum

INCOME_i = the 2016 estimated income (in dollars) of the ith alum

CALLS_i = the # of calls to the ith alum asking for a donation in 2016

a. Carefully explain the meaning of each estimated coefficient. Are the estimated signs what you expected?

b. Why is the left-hand variable in your friend’s equation GIFT_i and not GIFT_i?

c. Your friend didn’t include the stochastic error term in the estimated equation. Was this a mistake? Why or why not?

d. Suppose that your friend decides to change the units of INCOME from “dollars” to “thousands of dollars.” What will happen to the estimated coefficients of the equation? Be specific.

e. If you could add one more variable to this equation, what would it be? Explain.