Suppose you are interested in explaining variation in Vacation Spending in a sample of 12,486 men and women and that you estimate the sample regression function (standard errors in parentheses)

$\begin{array}{llcc}
\text {Vacation Spending}_ { i } = &639.82 +& 0.22 \text {Income} { i } + &217.39 \text {College Graduate}_ { i }\

&( 134.62 ) &( 0.05 )&(91.43)
\end{array}$

a)Which variable do you suspect could be responsible for heteroskedasticity in this model? Why? Explain.
b)How would you use the Goldfeld-Quandt test to determine whether heteroskedasticity is present? Explain.
c)Suppose you know that heteroskedasticity takes the form $$h ( x ) = \operatorname { Income } _ { i } ^ { 2 } \cdot \sigma ^ { 2 }$$
.How would you use Weighted Least Squares to correct for the heteroskedasticity? Explain.

Question

Suppose you are interested in explaining variation in Vacation Spending in a sample of 12,486 men and women and that you estimate the sample regression function (standard errors in parentheses)

$\begin{array}{llcc}
 \text {Vacation Spending}_ { i } = &639.82 +& 0.22 \text {Income} { i } + &217.39 \text {College Graduate}_ { i }\

&( 134.62 ) &( 0.05 )&(91.43)
\end{array}$
 
a)Which variable do you suspect could be responsible for heteroskedasticity in this model? Why? Explain.
b)How would you use the Goldfeld-Quandt test to determine whether heteroskedasticity is present? Explain.
c)Suppose you know that heteroskedasticity takes the form $$h ( x ) = \operatorname { Income } _ { i } ^ { 2 } \cdot \sigma ^ { 2 }$$ 
.How would you use Weighted Least Squares to correct for the heteroskedasticity? Explain.

Quizplus · Accepted Answer

The Answer of Suppose you are interested in explaining variation in Vacation Spending in a sample of 12,486 men and women and that you estimate the sample regression function (standard errors in parentheses)

$\begin{array}{llcc}
 \text {Vacation Spending}_ { i } = &639.82 +& 0.22 \text {Income} { i } + &217.39 \text {College Graduate}_ { i }\

&( 134.62 ) &( 0.05 )&(91.43)
\end{array}$
 
a)Which variable do you suspect could be responsible for heteroskedasticity in this model? Why? Explain.
b)How would you use the Goldfeld-Quandt test to determine whether heteroskedasticity is present? Explain.
c)Suppose you know that heteroskedasticity takes the form $$h ( x ) = \operatorname { Income } _ { i } ^ { 2 } \cdot \sigma ^ { 2 }$$ 
.How would you use Weighted Least Squares to correct for the heteroskedasticity? Explain.

Suppose You Are Interested in Explaining Variation in Vacation Spending