Question
Suppose that you have the individual wage data for three counties in Atlanta: Dekalb county, Fulton county, and Gwinnett county. You are considering the following
Suppose that you have the individual wage data for three counties in Atlanta: Dekalb county, Fulton county, and Gwinnett county. You are considering the following model wagei = 0 + 1Gi + 2Fi + 3agei + 4age2 i + Ui Here, Gi is the Gwinnett county dummy variable and Fi is the Fulton county dummy variable. After the fitting the model using the OLS estimator, you found that 3 > 0 and 4 < 0. Hence the fitted model suggests that As age increases the wage increases but at a diminishing rate. You want to find out whether the age level where the positive age effect changes to the negative age effect is greater than 65 or not. The age level where the slope changes the sign satisfies 3 + 2 4 agei = 0. Hence the relevant null hypothesis is H0 : 3 24 = 65 H1 : 3 24 > 65 which can be rewritten as H0 : 3 + 1304 = 0 H1 : 3 + 1304 < 0 You want to rewrite your model by removing 3 and introducing the relevant such that your hypothesis can be written as H0 : = 0 H1 : < 0. Choose the regressor that does not appear in this rewritten model. (a) Gi (b) Fi (c) agei (d) age2 i (e) none of abov
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