IFMR GSB, Krea University

Basic Econometrics (BAE)

MBA Batch of 2022-2024
Review of Statistics
Practice Problem Set-1
Solutions

1. Suppose cards numbered one through ten are placed in an urn, mixed up, and then one of the
cards is drawn at random. It is known that the number on the drawn card is at least five, then
what is the conditional probability that it is eight?
Ans. Let us define the following events:
A: the drawn card is at least five
B: the drawn card is 8
6
Now, P (A) = 10 . We need to find out P (B|A).
1
P (A∩B)
P (B|A) = P (A) = 10
6 = 61 .
10

2. The following table gives the joint probability distribution between employment status and
college graduation among those either employed or looking for work (unemployed) in the working-
age population of a country.

Unemployed (Y=0) Employed (Y=1) Total

Non-college grads (X=0) 0.078 0.673 0.751
College grads (X=1) 0.042 0.207 0.249
Total 0.12 0.88 1

Now answer the following:

(a) Compute E(YP).

Ans.E(Y ) = yP (Y = y) = 0 × 0.12 + 1 × 0.88 = 0.88
(b) Calculate E(Y |X = 1).
P f (1,y) P (X=1,Y =0) P (X=1,Y =1) 0.207
Ans.E(Y |X = 1) = y fX (1) = 0 × P (X=1) +1× P (X=1) =1× 0.249 = 0.831
(c) Calculate the unemployment rate for college graduates.
Ans. Unemployment rate for college graduates=1 − E(Y |X = 1) = 0.168. Alternatively,
this also equals P (Y = 0|X = 1).
(d) A randomly selected citizen of this country reports being unemployed. What is the proba-
bility that this worker is a college graduate?
Ans. We have to calculate P (X = 1|Y = 0) = P (X=1,Y =0)
P (Y =0) = 0.042
0.12 = 0.35
(e) Are educational achievement (X) & employment status (Y ) independent?
Ans. Let’s check whether f (x, y) = fX (x)fY (y).
f (0, 0) = 0.078 & fX (0)fY (0) = 0.751 × 0.12 = 0.090. Thus, f (x, y) ̸= fX (x)fY (y). Hence,
X & Y are not independent.[Do not resort to showing Cov(X, Y ) = E(XY )−E(X)E(Y ) =
0 to show independence. Why?]

3. Suppose X & Z be two independently distributed standard normal random variables, and let
Y = X 2 + Z. Now answer the following:

1
 (a) Show that E(Y |X) = X 2 .
Ans.E(Y |X) ⇒ E(X 2 +Z|X) = X 2 +E(Z|X) = X 2 +E(Z) = X 2 (∵ X & Z are independent
and E(Z) = 0)
(b) Show that E(Y ) = 1.
Ans. E(Y ) = E(X 2 ) = V (X) = 1
(c) Show that Cov(X, Y ) = 0.
Ans. Cov(X, Y ) = E(XY ) − E(X)E(Y ) = E(XY ) − 0 × 1 = E(XY ) = E(X 3 ) = 0 [Note:
odd order moments of X equal zero. Recall X is symmetric (skewness=0) around its mean.
This shows that Cov(X, Y ) = 0 ⇏ E(Y |X) = E(Y ).]
4. Consider the following joint p.d.f
(
6xy(2 − x − y) for 0 < x < 1, 0 < y < 1
f (x, y) =
0 elsewhere
Now answer the following questions:
(a) Find the marginal distribution of X and Y .
R1
Ans.fX (x) = 6xy(2 − x − y)dy
0
R1 R1 R1
= 12x ydy − 6x2 ydy − 6x y 2 dy
0 0 0
= 4x − 3x2
Similarly, we can find fY (y) = 4y − 3y 2
(b) Find E(X|Y = y).
f (x,y)
Ans. First, we have to calculate the conditional PDF i.e. fY (y) .
f (x,y) 6x(2−x−y)
fY (y) = [by replacing the f (x, y) & fY ]
4−3y
R1 R1
E(X|Y = y) = xf (x|Y = y)dx = x 6x(2−x−y) 4−3y dx = 2.5−2y
4−3y
0 0
(c) Evaluate P X ≤ 12 |Y = 21

Ans.Now we found that ffY(x,y)

(y) =
6x(2−x−y)
4−3y . Plugging y = 0.5 here we get f (x,y)
fY (y) = (3.6x −
2
2.4x )
1

1 1

R2
Thus, P X ≤ 2 |Y = 2 = (3.6x − 2.4x2 )dx = 0.35
0

5. Let x1 , x2 , ..., xn be a sample of size n from a normal distribution N (µ, σ 2 ). Consider the follow-
ing point estimators of µ:

µ
c1 = x1
x1 1
µ
c2 = + (x2 + x3 + .... + xn )
2 2(n − 1)
(a) Which of the above estimators are unbiased?
Ans. E [c µ2 ] = 21 µ + 2(n−1)
µ1 ] = E [x1 ] = µ and E [c 1
(n − 1)µ = µ. Hence, both are unbiased
estimators of µ
(b) Which of the above estimators are consistent?
Ans. V (cµ1 ) = V (x1 ) = σ 2 . Thus, as n → ∞, V (cµ1 ) remains constant and therefore µ
c1 is
2 σ2 σ2 n
not consistent. V (cµ2 ) = σ4 + 4(n−1) = 4(n−1) . Thus, as n → ∞, V (cµ2 ) does not converge
to zero and it is not consistent.
(c) Find the relative efficiencies: µ1 to µ2 . What can you conclude?
3n−4
Ans. V (c µ2 ) = σ 2 4(n−1)
µ1 ) − V (c > 0 ∀n > 1. Hence, µ
c2 is more efficient.
(d) Are all unbiased estimators consistent?
Ans. No. As evident from the properties of µ
c1 .