A regression of average monthly expenditure (AME, measured in euros) on average monthly income (AMI, measured in euros) using a random sample of college-educated full-time workers earnings €100 to €1.5 million yields the following: AME = 710.7 + 8.8 × AMI, R2 = 0.030, SER = 540.30 d. What does the regression predict will be the expenditure of a person with an income of €100? With an income of €200? e. Will the regression give reliable predictions for a person with an income of €2 million? Why or why not? ( f. Given what you know about the distribution of earnings, do you think it is plausible that the distribution of errors in the regression is normal? (Hint: Do you think that the distribution is symmetric or skewed? What is the smallest value of earnings, and is it consistent with a normal distribution?).
A regression of average monthly expenditure (AME, measured in euros) on average monthly income (AMI, measured in euros) using a random sample of college-educated full-time workers earnings €100 to €1.5 million yields the following:
AME = 710.7 + 8.8 × AMI, R2 = 0.030, SER = 540.30
d. What does the regression predict will be the expenditure of a person with an income of €100? With an income of €200?
e. Will the regression give reliable predictions for a person with an income of €2 million? Why or why not? (
f. Given what you know about the distribution of earnings, do you think it is plausible that the distribution of errors in the regression is normal? (Hint: Do you think that the distribution is symmetric or skewed? What is the smallest value of earnings, and is it consistent with a
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