ECON 2220

Question 1: An economist is interested in characterizing the impact of poverty level on education level. Poverty level is dened as the percent of the states population living in households with incomes below the federally dened poverty level. Some recent data are tabulated below. (Data source: Mind On Statistics, 3rd edition, Utts and Heckard).

Education level (yrs) 8.5 12.1 7.8 19.4 11.2 Poverty level 31.5 18.9 35 14.4 16.7

(a) Write down the regression model explaining the impact of poverty on education. Explain the meanings of the intercept and slope coecients. (b) Calculate the OLS estimates of the intercept and slope. (Hint: b 0 = 21.14 and b 1 = 0.81.) (c) Calculate R2 and adj. R2. Explain what these numbers mean. (Hint: R2 = 0.65 and R2 = 0.53.) (d) If the poverty rate in another state was 25%, what number for the predicted level of education can you come up with?