# 1. The following sample on the level of education (measured by the number of years of schooling) ...

###### Question:

1. The following sample on the level of education (measured by the number of years of schooling) and wages (hourly) earned by 15 individuals is as follows: Education Wages (S) Education Wages (S) 4.45 5.57 5.97 7.33 7.31 6.58 4.45 13.53 10 12 14 15 16 17 15 7.31 7.82 11.02 10.67 10.83 13.61 10.67 9 10 18 According to the human capital theory education increases a worker's pro- ductivity and thus leads to higher wages. Consider the economic model Wages Bo B1 Education. a. What sign would you expect ß0 and to take? Draw a rough scatter raph of the data with wages on the vertical axis and education on the horizontal axis. Does it look like the data support the human capital theory? b. Estimate WagesoEducation+u. Give a plot of Wages,. Interpret the intercept and the slope coefficient. C. Calculate the standard error of 30 and β1 d. Calculate and interpret R2 e. Explain the assumption of homoscedasticity.