Question

Consider the following least-squares specification between test scores and the​ student-teacher ratio:

Test Score = 557.8 + 36.42 In (Income).
According to this​ equation, a​ 1% increase in income is associated with an increase in test scores​ of:

A. 36.42 points
B. 0.36 points
C. 557.8 points
D. points can not be determined from the information given here

Answer 1

Option B

Explanation:

Given that the regression equation using least squares for test scores and student teacher ratio is

Test Score = 557.8 + 36.42 In (Income).

Say if 1% income is increased.

Let income be 100

New income = 101

Then we have

Test score original =

`557.8+36.42 Ln 100\\= 725.520`

Test score new income

=
`557.8+36.42 ln (101)\\= 725.882`

Increase = 0.362~0.36

Option B is right.