In 2001 Kenkel and Terza published an article in which theyinvestigated the impact on an individual's alcohol consumption of aphysician's advice to reduce drinking. The simplified model belowwas estimated with their data set (although the econometrictechniques used in the article are more complex than those we havediscussed in this class).
DRINKS= 13.00 + 11.36 Advice-.20 EDUC+ 2.85 DIVSEP+14.20 UNEMP
(5.37) (-.65) (1.11) (2.75)
N = 500, R2 = 0.377, t-Statisticsin parentheses
DRINKS = drinks consumed by the individual in the last twoweeks
ADVICE = 1 if a physician had advised the individual to cut back ondrinking alcohol, 0 otherwise
EDUC = years of schooling of the individual
DIVSEP = 1 if the individual is divorced or separated, 0otherwise
UNEMP = 1 if the individual is unemployed, 0 otherwise
14. Which of the following best reflects the interpretation of thecoefficient of determination, R2?
a.      37.7 percent of the variationin DRINKS is due to random (unexplained) variations.
b.     37.7 percent of the variation inDRINKS is explained by variation in the independent variables.
c.      37.7 percent of people listento the advice of a physician in regards to their drinkingbehaviors.
d.     37.7 percent of the people in thissample drink.
15. Which of the following best reflects the interpretation of thecoefficient on the variable EDUC?
a.      For every additional year ofschooling, the number of DRINKS decreases 0.2, ceteris paribus.
b.     People with more education drink20% less than those with less education, ceteris paribus.
c.      For every additional year ofschooling, people drink 20 percent less, ceteris paribus.
d.     Consuming one additional DRINK(every 2 weeks) results in people completing .2 years lesseducation, ceteris paribus.
16. Which of the following best reflects the interpretation of thecoefficient on the variable UNEMP?
a.      14.20 percent of the peoplein this sample were unemployed, while 2.75 percent were heavydrinkers, ceteris paribus.
b.     Consuming one additional DRINK(every 2 weeks) results in people being 14.20 percent more likelyto be unemployed, ceteris paribus.
c.      An unemployed person, onaverage, consumed 14.20 percent more drinks (in the last 2 weeks)than an employed person, ceteris paribus.
d.     An unemployed person, on average,consumed 14.20 more drinks (in the last 2 weeks) than an employedperson, ceteris paribus.
17. Conduct two-tailed hypothesis tests on the significance of eachof the regression coefficients. Use the 5% level of significanceand 120 degrees of freedom. What is the t-Critical value for thesetests?
a.      3.374
b.     1.658
c.      1.980
d.     2.398
18. Conduct two-tailed hypothesis tests on the significance of eachof the regression coefficients. Use the 5% level of significanceand 120 degrees of freedom. Which coefficients are significantlydifferent from 0?
a.      The coefficients on EDUC andDIVSEP only
b.     None of the coefficients aresignificant at the 5% level.
c.      All four coefficients aresignificant at the 5% level.
d.     The coefficients on ADVICE andUNEMP only
