This assignment is worth 20% of your ECON241 final mark.

Ø Unless it is specifically mentioned in the question, DO NOT copy and paste any Gretl output.

Ø Use Gretl to find critical values and p-values for all your test.

To save the data file: Right click on the data file and select ‘Save Link As.’ and save the

data file.

Note: Note: There will be a deduction of 20% of the total available marks for each 24

hour period or part thereof that the submission is late (for example, 25 hours late in

submission – 40% penalty).

Total marks: 50

The data file, House.gdt, contains data on house prices and various other determinants of

house prices. The variables are defined as follows:

price = house price, dollars.

sqmt = total living area in square metre (m2)

bdrms = number of bedrooms

age = age of house in years

traditional = 1 if traditional style; = 0 if other, such as townhouse, contemporary, etc.

small = 1 if (sqmt < 150; = 0 otherwise.

Medium = 1 if (sqmt ≥150 and sqmt <300); 0 otherwise.

Large = 1 if (sqmt > 300); 0 otherwise.

(Your answers to the questions regarding hypothesis testing should include all the

following steps: The null and alternative hypotheses, test statistic, the distribution of

2

the test statistic under the null including the degrees of freedom, critical value(s),

decision rule and your conclusion. Follow and show all the hypothesis test steps

described in Chapter 3.4 in the textbook HGL, 4e. Use the critical value method to

make a decision. Assume that the random errors in the regression models are normally

distributed.)

Restrict your sample only for small houses for Q1-Q4 : (To restrict sample in Gretl

à select “sample” à “Restrict, based on criterion” à check box “Use dummy

variable” à then choose “small” from the dummy variable list. Note that there are

275 small houses in our sample. Gretl would show you the sample size as 1-275 after

you have restricted.)

1. [5 marks] Obtain a scatter plot between house price (price) against total square metre (sqmt) and comment on your plot. Copy and paste your graph here.

(To obtain a scatter plot in Gretl, → View → graph specified vars → XY Scatter → X-axis variables (sqrft) →Y-axis variable (price) and ok.)

2. [5 marks] Estimate the following linear regression model.