*this is dummy (binary) variables 1. Suppose you are interested in learning how
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Question
*this is dummy (binary) variables
1. Suppose you are interested in learning how recession could change people's charitable donation behavior. Suppose you have data on individual's dollar amount donated to some good cause (Don) and individual's income (Inc), in dollars, for the United States for the period 1979-1985. In 1982 the United States suffered a very bad recession, an event that might disturb the relationship between Don and Inc. To see if this happened, you estimate a simple savings function that relates Don to Inc. log(Don) = + Blog(inc) + AD + 3log(inc) * D + u, where D-1 for 1979-1981, and 0 for 1982-1985. (1) What is the impact of the recession (D) on donations? Write down the expression for it (2) How would you test the null hypothesis that the donation-income relationship did not change before and after the 1982 recession? Write down the null hypothesis and determine if you need to perform a t test or an F test.Explanation / Answer
1) Marginal impact of donation when D = 0 is the impact of recession on donations => -[betatwo*D + betathree * Log(inc)*D]
2) The follwoing hypthesis needs to be tested for this:
Null : Betatwo = Betathree = 0
Alternative : Either Betatwo != 0 , or Bethathree != 0 or both
We will need an F-test for this as there is a joint testing involved of two coeffecients.
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