Your textbook specifies a simple regression problem for two time periods for the years 1982 and 1988 as follows:
FatalityRate_i,₁₉₈₂= β₀ + β₁BeerTax_i,₁₉₈₂+ u_i,₁₉₈₂
FatalityRate_i,₁₉₈₈= β₀ + β₁BeerTax_i,₁₉₈₈+ u_i,₁₉₈₈
After subtracting the first equation from the second equation, the authors estimate the model and find a negative intercept.
a. Show how you would have to modify the two equations to allow for the presence of an intercept in the differenced model.
b. What would the relative magnitude of the modified model have to be for you to find a negative intercept?

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The Answer of Your textbook specifies a simple regression problem for two time periods for the years 1982 and 1988 as follows: FatalityRate_i,₁₉₈₂= β₀ + β₁BeerTax_i,₁₉₈₂+ u_i,₁₉₈₂ FatalityRate_i,₁₉₈₈= β₀ + β₁BeerTax_i,₁₉₈₈+ u_i,₁₉₈₈ After subtracting the first equation from the second equation, the authors estimate the model and find a negative intercept. a. Show how you would have to modify the two equations to allow for the presence of an intercept in the differenced model. b. What would the relative magnitude of the modified model have to be for you to find a negative intercept?

Your Textbook Specifies a Simple Regression Problem for Two Time