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2. [Total - 15 points] Suppose you are hired by the state of California to study the relationship between class size and students' performance, measured
2. [Total - 15 points] Suppose you are hired by the state of California to study the relationship between class size and students' performance, measured by test scores. You estimate a linear univariate regression model using an OLS estimator, where you use the student-to-teacher ratio (number of students divided by the number of teachers) and test scores, from 420 Californian school districts in 1998. The sample size is 420. The estimated model is: TestScorei = 698.9 - 2.28 x StudentTeacher Ration + ei The average TestScore is 654.2 and the standard deviation is 19.1, while the average StudentTeacher Ratio is 19.6 and the standard deviation is 1.9. a. [5 points] Explain the elasticity method to interpret the estimated coefficient? What about the standardized coefficient method? Why do we need these methods to interpret the economic significance of the estimated coefficient? Explain. b. [5 points] Calculate the elasticity using the elasticity method, and interpret the estimated coefficients using the elasticity method. c. [5 points] Calculate the standardized coefficients using the standardization method, and interpret the estimated coefficients using the standardized coefficient method
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