A community in your neighborhood decide to build a private park. The HOA decides that each household provide a lump sum donation. You are interested in studying how income, age of household head and distance affect each household's donation. The public record helps us to collect information on income, age, and distance (=1 if household lives less than 5 miles from the park and 0 if more than 5 miles). The specified model is:= 0+ 1+ 2 +3+

a) Provide intuition behind an expected sign for each estimated coefficient.

b) Interpret the coefficient on residence. How would you interpret it if distance was measured in miles (i.e. distance in miles from where the household lives to the park)?

c) You suspect the above model suffers from heteroskedasticity. Describe how you would test for heteroskedasticity using any test of your choice (e.g., Breusch-Pagan, White, etc.). Be sure to state the null and alternative hypothesis, write down your test statistics, and indicate how many degrees of freedom your test statistic has.

d)One possibility to test for heteroskedasticity is to combine features of the Breusch-Pagan and White test for heteroskedasticity by regressingu2onincome,age,residence, donation2. Do you expect the R2from this regression be larger or smaller than the R2that you would obtained from part (a.)? Explain why. Would it make sense to includedonationas a regressor in the combined Breush-Pagan and White test? Explain why.