Applied economic Assignment Example | Topics and Well Written Essays - 750 words

Applied economic - Assignment ExampleGiven that model 2 is the correct model, the Gauss-Markov theorem tells me that the models ordinary least square estimators are the best estimators under unmixed linear regression models. This implies that the coefficients are the best for the model and the R2 is the highest that the model can attain (Wooldridge 102).Suppose a seek was conducted on the hypothesis at 15 percent take of confidence and a p-value of 0.119 obtained, the test result would mean that no significant relationship exist. This is because for a two tailed test, implied by the resource hypothesis that 1-3, then the confidence level for the test is 0.075. The p-value is therefore greater that the confidence level and this means that the null hypothesis is not rejected. Conducting the test 10 percent level could change the shutdown on significance. This is because of the associated increment in confidence interval that could extend to cover the critical value.Assuming that get up (2009) is correct in his model in which openness is a significant factor to governments expenditure, then expected value of error term in the model that omitted the openness variable cannot be zero and the expression is not valid. This is because of effects openness that was factored in the error term and meant that what was perceived to be the error term was not error but effects of an unidentified variable.Even though some(prenominal) models leads to rejection of the null hypothesis, the greater downright t-statistic from model two offers better evidence for rejecting the null hypothesis because it would assure rejection of the null hypothesis at a greater level of precision than would model 1. The greater absolute value of the statistic in model two explains this because greater statistic than a reference value implies significance.Suppose community is added to model 1, then