3Table 2 gives data for a random sample of twelve couples on

(3)Table 2 gives data for a random sample of twelve couples on the number of children they have XI and the number of children they had stated they wanted at the time of their marriage, X2. (a)Write an econometric model that relates the variables in botlh the general and specific forms. Briefly explain the importance of stating the model in its specific form. (b)What is your expectation about the sign of the slope coefficient? Briefly explain the motivation for this expectation. (c)Estimate the parameters of the model, present the results in standard form and interpret them.

Solution

a) The econometric model will be like

X1 = 0+ 1*X2. The model explains how the number of children that the couples have depends on the number they wanted at the time of their marriage.

We have taken a linear mode because it is simple and easy to work with. Secondly any other model like log- log will not work as we do not want to look at the elasticity.

b) The slope will be positive as the actual children are more than or equal to the one expected from the data given