Question

Consider the following least squares specification between test scores and the student - teacher ratio: TestScore = 557.8 + 36.42 In (Income). According to this equation, a 1% increase income is associated with an increase in test scores of :A. 36.42 points B. cannot be determined from the information given here C. 0.36 points D. 557.8 points

Answer 1

`Test score_i= 557.8 +36.42 Income`

If we increase the income by 1% that means that the new income would be 1.01 the before one and if we replace this we got:

`Test score_f = 557.8  + (36.42* 1.01 Income)= 557.8 +36.7842 Income`

And the net increase can be founded like this:

`Test score_f -Tet score_i = 557.8 +36.7842 Income- [557.8 +36.42 Income] = 36.7842 Income -36.42 Income = 0.3642`

So then the net increase would be:

C. 0.36 points

Explanation:

For this case we have the following linear relationship obtained from least squares between test scores and the student-teacher ratio:

`Test score_i= 557.8 +36.42 Income`

If we increase the income by 1% that means that the new income would be 1.01 the before one and if we replace this we got:

`Test score_f = 557.8  + (36.42* 1.01 Income)= 557.8 +36.7842 Income`

And the net increase can be founded like this:

`Test score_f -Tet score_i = 557.8 +36.7842 Income- [557.8 +36.42 Income] = 36.7842 Income -36.42 Income = 0.3642`

So then the net increase would be:

C. 0.36 points