Solutions Manual for Essentials of Econometrics 5th Edition By Damodar Gujarati All Chapters Covered

Solutions Manual
Essentials of Econometrics 5th Edition
By Damodar Gujarati All Chapters Covered




1

, CHAPTERD1
THEDNATUREDANDDSCOPEDOFDECONOMETRICS



QUESTIONS
1.1. (a)DOtherDthingsDremainingDtheDsame,DtheDhigherDtheDtaxDrateDis,DtheDlowerD
theDpriceDofDaDhouseDwillDbe.
(b) AssumeDthatDtheDdataDareDcross-
sectional,DinvolvingDseveralDresidentialDcommunitiesDwithDdifferingDtaxDrate
s.
(c) YiD DB1D DB2DXDi
whereDYD=DpriceDofDtheDhouseDandDXD=DtaxDrate
(d) YiD DB1D DB2DXDiD Dui

(e) GivenDtheDsample,DoneDcanDuseDOLSDtoDestimateDtheDparametersDofDth
eDmodel.
(f) AsideDfromD theD taxD rate,D otherD factorsD thatD affectD houseD pricesD are
D mortgageDinterestDrates,DhouseDsize,Dbuyers’DfamilyDincome,DtheDstateDofDt
heDeconomy,DtheDlocalDcrimeDrate,Detc.DSuchDvariablesDmayDbeDincludedDinDa
moreDdetailedDmultipleDregressionDmodel.
D



(g) ADpriori,D B2D<D0.DTherefore,D oneDcanD testD H0D:DB2D D 0DagainstDH1D:DB2D<D0.


(h) TheDestimatedDregressionDcanDbeDusedDtoDpredictDtheDaverageDpriceDofD
aDhouseDinDaDcommunity,DgivenDtheDtaxDrateDinDthatDcommunity.D OfDcourse
,DitDisDassumedDthatDallDotherDfactorsDstayDtheDsame.
1.2. EconometriciansDareDnowDroutinelyDemployedDinDgovernmentDandDbusines
sDtoDestimateDandD/DorDforecastD(1)DpriceDandDcostDelasticities,D(2)Dproducti
onDandDcostDfunctions,DandD(3)DdemandDfunctionsDforDgoodsDandDservices,
D etc.DEconometricDforecastingDisDaDgrowthDindustry.

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,1.3. TheDeconomyDwillDbeDbolsteredDifDtheDincreaseDinDtheDmoneyDsupplyDleadsD
toDaDreductionDinDtheDinterestDrateDwhichDwillDleadDtoDmoreDinvestmentDacti
vityDand,Dtherefore,DtoDmoreDoutputDandDmoreDemployment.D IfDtheDincrease
inDtheDmoneyD supply,D however,D leadsD toD inflation,D theD precedingD result
D



D may




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, notDoccur.DTheDjobDofDtheDeconometricianDwillDbeDtoDdevelopDaDmodelDtoDpr
edictDtheDeffectDofDtheDincreaseDinDtheDmoneyDsupplyDonDinflation,DinterestD
rate,Demployment,Detc.
1.4. AsDaDmatterDofDfact,DonDOctoberD1,D1993DtheDFederalDGovernmentDdidDincrea
seDtheDgasolineDtaxDbyD4Dcents.DSinceDgasolineDandDcarsDareDcomplementa
ryDproducts,DeconomicDtheoryDsuggestsDthatDanDincreaseDinDtheDpriceDofDgas
olineDwillDnotDonlyDleadDtoDaDdeclineDinDtheDdemandDforDgasolineDbutDalsoDi
nDtheDdemandDforDcars,DceterisDparibus.DTheDFordDMotorDCompanymayDbeD
advisedDtoDproduceDmoreDfuel-
efficientDcarsDtoDstaveDoffDaDseriousDdeclineDinDtheDdemandDforDitsDcars.DAnD
automobileDdemandDfunctionDwillDprovideDnumericalDestimatesD ofD theD effe
ctD ofD gasolineD taxD onD theD demandforDautomobiles.
1.5.
ThereDareDmanyDalternativeDdesignsDpossible.DHowever,DtoDkeepDthingsDsi
mple,DandDdiscussDjustDaDbasicDideaDofDtheDdesign,DweDcouldDthinkDofDusingD
anDeconometricDmodelDknownDasDAutoregressiveDDistributedDLagD(ARDL)D
ofDtheDform:
pD p cD cD
yD D D D y D D g D D g D D D D D D D D D D D D
D
u
D
t tD 1 0 t 1 tD 1 0 t 1 tD 1 0 t 1 tD 1 t


where
YtD DYtD 1D
ytD =DrealDGDPDgrowthDrateDinDyearDt;
YtD 1
GtD DGtD 1D
gt D realDgovernmentDinfrastructureDinvestmentDgrowthDrateDin
GtD 1

yearDt;
p
D D
t
D personalDincomeDtaxDrateDinDyearDt;
cD
D
t corporateDincomeDtaxDrateDinDyearDt;

ytD D ytD D ytD 1D DchangeDinDrealDGDPDgrowthDrateDinDyearDt;
gtD DgtD DgtD 1D D changeDinDrealDgovernmentDinfrastructureDinvestmentDgrowthD
rateDinDyearDt;
p p p
D D D D D D D D D changeDinDpersonalDincomeDtaxDrateDinDyearDt;
t t tD 1
cD cD cD
D D D D D
D
D changeDinDcorporateDincomeDtaxDrateDinDyearDt.
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