Mtodos Quantitativos em Economia Problem Set #1 Due date: June 18th

Question 1 (exercise 2.1):

2012.2/Mello

Let Y denote the number of heads that occur when two coins are tossed. [a] Derive the probability distribution of Y. [b] Derive the cumulative probability distribution of Y. [c] Derive the mean and variance of Y.

Question 2 (exercise 2.3): Using the random variables X and Y from table 2.2 below, consider two new random variables, W=3+6X and V=20-7Y. Compute (i) E(W) and E(V); (ii) and Corr(W,V). Table 2.2: Joint Distribution of Whether Conditions and Commuting Times Rain (X=0) Long Commute (Y=0) Short Commute (Y=1) Total 0.15 0.15 0.30 No Rain (X=1) 0.07 0.63 0.70 Total 0.22 0.78 1.00 and ; and (iii)

Question 3 (exercise 2.5): In September, Seattles daily high temperature has a mean of 70F and a standard deviation of 7F. What are the mean, standard deviation, and variance in Celsius degrees? [Hint: Recall that ( )]

Question 4 (exercise 2.6): The following table gives the joint probability distribution between employment status and college graduation among those either employed or looking for work (unemployed) in working age U.S. population for 2008.

Joint Distribution of Employment Status and College Graduation in the U.S. Population Aged 25 and Greater, 2008 Unemployed (Y=0) Non-college grads (X=0) College grads (X=1) Total 0.037 0.009 0.046 Employed (Y=1) 0.622 0.332 0.954 Total 0.659 0.341 1.000

[a] Compute E(Y). [b] The unemployment rate is the fraction of the labor force that is unemployed. Show that the unemployment rate is given by 1-E(Y). [c] Calculate ( | ) and ( | ).

[d] Calculate the unemployment rate for (i) college graduates and (ii) non-college graduates. [e] A randomly selected number of this population reports being unemployed. What is the probability that this worker is a college graduate? A non-college graduate? [f] Are educational achievement and employment status independent? Explain

Question 5 (exercise 2.7): In a given population of two-earner male/female couples, male earnings have a mean of $40,000 per year and a standard deviation of $12,000. Female earnings have a mean of $45,000 per year and a standard deviation of $18,000. The correlation between male and female earnings for a couple is 0.80. Let C denote the combined earnings for a randomly selected couple. [a] What is the mean of C? [b] What is the covariance between male and female earnings? [c] What is the standard deviation of C? [d] Convert the answers to (a) through (c) from U.S. Dollars ($) to Euros (). (Note: use the exchange rate $1.5=1)

Question 6 (exercise 2.8): The random variable Y has a mean of 1 and a variance of 4. Let , and .
2

). Show that

Question 7 (exercise 2.14): In a population following questions: [a] In a random sample of size n=100, find ( [b] In a random sample of size n=165, find ( [c] In a random sample of size n=64, find ( ). ). ). and . Use the Central Limit Theorem to answer the

Question 8 (exercise 2.15): Suppose [a] Compute ( are i.i.d. random variables, each distributed ( ). ) when (i) n=20, (ii) n=100, and (iii) n=1,000. ) becomes close to

[b] Suppose is a positive number. Show that ( 1.0 as grows large.

[c] Use your answer in (b) to argue that converges in probability to 10.

Question 9 (exercise 2.19): Consider two random variables X and Y. Suppose that Y takes on that X takes on values [a] Show that ( that ( | ) )] and ( | ( ) ( ) . ). ( . | ) ( ). [Hint: Use the definition of values and

[b] Use your answer to (a) to verify equation (2.19), ( ) [c] Suppose that X and Y are independent. Show that

Question 10 (exercise 2.23): This exercise provides an example of a pair of random variables X and Y for which the conditional mean of Y given X depends on X but [a] Show that ( | ) [b] Show that [c] Show that ( ( ) ) . . [Hint: Use the fact that the odd moments of a standard normal (
3

. Let X and Z be .

independently distributed standard normal random variables, and let .

random variable are all zero] [d] Show that and thus ) .