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Part 2: More simple linear regression in Stata (25 points total)

1. (5 points) Consider a simple linear regression model relating the log of the hourly wage rate (lwage) to years of education (educ): lwage= β0 + β1 educ + u What is the meaning of the error term u?(No Stata output needed.)

2. (5 points) Give an example of a variable (or factor) that might be contained in u. (No Stata output needed.) 3. (5 points) What is the key condition for β1 to be interpreted as the causal effect of an additional year of education on lwage? Does this condition hold? (No Stata output needed.)

4. (5 points) Use the data in <HTV.dta> to estimate the simple regression model in question 1 and paste the results into your document. Hint: Use the reg command in Stata: reg lwage educ. (Show your Stata output.)

5. (5 points) What is the R2 of the regression and how do you interpret it? What does it tell you about the extent to which wages are causally affected by education? (No Stata output needed.)

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