Problem Set 1

Introductory Econometrics
Econ 3121A, Fall 2017
Due: In class on Tuesday, September 26, 2017
(no late problem set accepted)

*Please answer as succinctly as possible while still fully answering the questions. You should submit your
problem set together with a signed declaration of originality (on page 3).

Problem 1. (Discrete random variable)

Let X be a discrete random variable with probability density function (PDF):

b/5
if x = 2,
f (x) = b/3 if x = 1,

b/2 if x = 0.

1. What value must b take for f (x) to be a proper PDF?

2. Derive and sketch the cumulative distribution function (CDF) of X.

3. What is the probability P (0 < X 2)?

4. Calculate the expected value and the variance of X.

Problem 2. (Continuous random variable)

Let X be a continuous random variable with probability density function (PDF):
(
c/x2 if 1 < x < 4
f (x) =
0 otherwise

1. What value must c take for f (x) to be a proper PDF?

2. Sketch a graph of the PDF f (x).
3. Derive and sketch the CDF of X.
4. Calculate the expectation and the variance of X.
5. Calculate the expectation and the variance of 3X + 1.
6. First, calculate E(X 2 ). Then compare E(X 2 ) with [E(X)]2 . Are they the same?
7. What is the probability P (0 < X 2)?
8. What is the probability P (X = 3)?

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Problem 3. (Review of the Normal Distribution)
Let X be a normal random variable distributed as N (1, 4). Find the probabilities of the following events:
1. P (X 2).
2. P (X > 2).
3. P (|X 3| > 1).

Problem 4. (Summation Notation)

1 Pn
Assume that we have data {X1 , . . . , Xn } and define sample mean Xn = n i=1 Xi . Prove that
n
1X
(Xi Xn ) = 0,
n i=1
n
1 X
(Xi Xn )Xn = 0,
n 1 i=1
and
n
X n
X
(Xi Xn )2 = Xi 2 n(Xn )2 .
i=1 i=1

Problem 5. (Covariance)
1. Let X and Y be two random variables. Using the definition of covariance (page 45 of Lecture Note 1)
and the properties of expectations (page 35 of Lecture Note 1), prove that:
Cov(X, Y ) = E(XY ) E(X)E(Y ),
Cov(X, Y ) = Cov(Y, X),
and

Cov(2X, X) = 2V ar(X).

2. If Y = 3X + 1, calculate (X, Y ). Hint: (X, Y ) is defined on page 47 of Lecture Note 1.

3. If X and Y are independent, then Cov(X, Y ) = 0. It is important to keep in mind that the converse
of this property is not true: zero covariance between X and Y does not imply that X and Y are
independent. Assume that X is a discrete random variable with marginal PDF

1/3
if x = 1
fX (x) = 1/3 if x = 0

1/3 if x = 1

and Y = X 2 .

(a) Derive the marginal PDF of fY (y).

(b) Derive the joint PDF fX,Y (x, y). Are X and Y independent? Hint: the definition of independence
is on Page 44 of Lecture Note 1. Are X and Y correlated, i.e., Cov(X, Y ) = 0?

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