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File: Ch01, Chapter 1, An Introduction to Econometrics

Multiple Choice

- Which of the following is NOT generally included in the study of econometrics?

a.) using economic data to estimate relationships

b.) testing economic hypotheses

c.) predicting economic outcomes

d.) developing new economic relationships.

Ans: d

Level: Easy

Section: 1.1

2.Consider the following model:

*Q ^{d}* = f(

*P, P*)

^{s}, P^{c}, INCwhere *Q ^{d }*is quantity demanded of a particular product per month,

*P*is the price of the product,

*P*is the price of substitutes,

^{s}*P*is the price of complements, and

^{c}*INC*is monthly income.

This equation represents

a.) a non-linear model

b.) an economic model

c.) an econometric model

d.) a challenge to the law of demand.

Ans: d

Level: Easy

Section: 1.2

- Economic theory provides a basis for which variables are relevant and should be included in an econometric model. But econometrics provides tools to estimate ____________________ which tells us ________________________________.

a.) a model, the functional form that should be used.

b.) causality, why it happens that way

c.) a parameter, how much or to what degree things change.

d.) variables, the probability of a specific outcome.

Ans: c

Level: Moderate

Section: 1.2

- Why is a random error term included in an econometric model?

a.) because many economic models have not been well developed yet and need to allow for inaccuracies

b.) because some people are irrational

c.) because there is intrinsic uncertainty in any economic activity due to individual decision making

d.) because most estimating techniques are not well suited to work with a deterministic model.

Ans: c

Level: Moderate

Section: 1.3

- Refer to the following equation:

*Q ^{s}* = b

_{1}+ b

_{2}

*P*+ b

_{3}

*P*+ b

^{r}_{4}

*P*+ b

^{s}_{5}

*TAX*+

*e*

where *Q ^{s}* is annual quantity supplied,

*P*is the price of the product,

*P*is the price of resources,

^{r}*P*is the price of goods that are substitutes in production, and

^{s}*TAX*is the excise tax on the product. This equation is

a.) an economic model

b.) an econometric model

c.) a market model

d.) a non-linear model

Ans: b

Level: Easy

Section: 1.3

- Refer to the following equation:

*Q ^{s}* = b

_{1}+ b

_{2}

*P*+ b

_{3}

*P*+ b

^{r}_{4}

*P*+ b

^{s}_{5}

*TAX*+

*e*

where *Q ^{s}* is annual quantity supplied,

*P*is the price of the product,

*P*is the price of resources,

^{r}*P*is the price of goods that are substitutes in production, and

^{s}*TAX*is the excise tax on the product. In this equation b

_{1 }represents

a.) a parameter to be estimated

b.) the random error term

c.) the predicted quantity supplied

d.) the equilibrium quantity

Ans: a

Level: Easy

Section: 1.3

- The parameters estimated using econometric methods are generally used for ___________________ or _____________________.

a.) testing hypotheses, predicting

b.) confirming, denying effects of policy.

c.) validation, repudiation.

d.) generating data, probability distributions.

Ans: a

Level: Moderate

Section: 1.3

- Suppose you stand outside a store and randomly give some shoppers coupons as they enter while other shoppers receive none. You then record how much each shopper spends in the store. The data you collect are

a.) survey data

b.) random data

c.) experimental data

d.) selective data

Ans: c

Level: Easy

Section: 1.4

- A data set that has observations on one entity at multiple points in time is classified as

a). time series data

b.) cross-section data

c.) panel data

d.) flow data

Ans: a

Level: Easy

Section: 1.5

10: A data set containing the number of adults with college degrees in each of the US states in 2009 is

a). time series data.

b.) cross-section data.

c.) panel data.

d.) flow data.

Ans: b

Level: Easy

Section: 1.5

- Which of the following variables is
*most*likely to be quantitative?

a.) gender

b.) education

c.) income

d.) employment

Ans: c

Level: Moderate

Section: 1.5

12: Which of the following variables is *least* likely to be quantitative?

a.) age

b.) GDP growth

c.) marital status

d.) inflation

Ans: c

Level: Moderate

Section: 1.5

- What does it mean for a panel data set to be balanced?

a.) males and females are equally represented in the sample

b.) the observations are equally split before and after the event being studied

c.) the number of observations in the treatment and control group are equal

d.) each unit of observation is observed for the same number of time periods

Ans: d

Level: Moderate/Difficult

Section: 1.5

- Of the following steps in conducting empirical economic research, which one should be performed last?

a.) find appropriate data that can be used for estimation

b.) build an economic model guided by economic theory

c.) evaluate and analyze the consequences and implications of the results

d.) estimate parameters and test hypotheses

Ans: c

Level: Moderate

Section: 1.6

- Which of the following sections usually comes first in a research report?

a.) state of problem

b.) description of data

c.) review of literature on the topic

d.) economic model

Ans: a

Level: Easy

Section: 1.7

- What does NBER stand for?

a.) Northern Banks Emergency Reserves

b.) Normally Balanced Econometric Regression

c.) National Bureau of Economic Research

d.) National Business and Economic Regulators

Ans: c

Level: Easy

Section: 1.8

- Which regional Federal Reserve Bank provides access to large amounts of economic data through FRED?

a.) Boston

b.) New York

c.) San Francisco

d.) St. Louis

Ans: d

Level: Easy

Section: 1.8

File: Ch-Prob, Probability Primer, Probability Primer

Multiple Choice

- A measure of the daily change in the closing value of the DJIA is a ____________ variable and a variable indicating whether it moved up or down is a ______________ variable.

a.) continuous, discrete

b.) flow, stock

c.) random, determined

d.) discrete, continuous

Ans: a

Level: Easy

Section: P.1

- If (P(X=x|Y=y) = P(X=x), then

a.) Y is the dependent variable

b.) X and Y are positively correlated

c.) X and Y are statistically independent

c.) Y must be a discrete random variable

Ans: c

Level: Moderate

Section: P.3

- The expected value of a random variable is

a.) the probability weighted mean

b.) a measure of central tendency of the pdf

c.) average value that occurs in many repeated trial of an experiment

d.) all of the above

Ans: d

Level: Moderate

Section: P.5

- Which of the following is NOT equal to cov(X,Y)?

a.) s_{xy}

b.) E[(x-m_{x})(y-m_{y})]

c.) E(xy)-m_{x}m_{y}

d.) r_{xy}

Ans: d

Level: Moderate/Difficult

Section: P.5

- If Z is a random variable generated by adding together X and Y which are also random variables, what do we know about var(Z) if X and Y are positively correlated.?

a.) var(Z) = var(X) + var(Y)

b.) var(Z) < var(X) + var(Y)

c.) var(Z) > var(X) + var(Y)

d.) var(Z) = var(X) * var(Y)

Ans: c

Level: Moderate/Difficult

Section: P.5

- Which of the following statements about the standard normal distribution is NOT true?

a.) m=0 , s^{2} = 1

b.) it can be used to find probability intervals for any normal distribution

c.) it is symmetric

d.) it is derived from repeated sampling of naturally occurring phenomena

Ans: d

Level: Moderate

Section: P.6

- Which of the following statements is true of the standard normal distribution, but not other normal probability distributions?

a.) P(X<0)=0.5

b.) it is symmetric

c.) P(X<(m_{x}-1)) = P(X>(m_{x}+1))

d.) it is often referred to as a “bell” curve

Ans: a

Level: Moderate

Section: P.6

Short Answer

1.) The difference between a pdf and cdf is ___________________________.

Ans: A pdf shows the probability of a random variable having a specific value or falling into an interval and a cdf shows the probability a random variable will be any value less than or equal to the specific value.

Level: Moderate

Section: P.2

- How would you write the following expression using summation notation?

Q_{1} + Q_{2} + Q_{3} + Q_{4} + ………….. + Q_{29}

Ans:

Level: Easy

Section: P.4

- Final grades in Professor Pickle’s course are calculated as a weighted average of the midterm and final exam. The midterm is weighted at 0.4 and the final is weighted as 0.6. This semester grades on the midterm exam were normally distributed with m
_{m}= 63 and s^{2}_{m}= 14. Grades on the final exam were also normally distributed with m_{f}= 75 and s^{2}_{f}= 20.

a.) Calculate the average final grade in Professor Pickle’s course?

b.) What do you expect the variance of the distribution of final grades to be? Why?

Ans a.): m_{t }= 0.4 m_{m} + 0.6m_{f }= 0.4(63) + 0.6(75) = 70.2

Ans b.) The variance = .4_{2}(14) + .6_{2} ( 20) + 2(.4)(.6)cov(m,f), however the covariance between the two scores is not given. If scores on the two exams were uncorrelated, the variance would be .4^{2}(14) + .6^{2} (20) = 9.44. The variance is most likely greater than 9.44 because students who perform above the mean on midterm exams tend to perform above the mean on the final exam, making the covariance between the two variables positive.

Level: Difficult

Section: P.5

File: Ch05, Chapter 5, The Multiple Regression Model

Multiple Choice

- When an error term is added to an economic model and assumptions about the distribution of the error term are made, the resulting model is ______________.

a.) fallacious, you should not make assumptions about error terms.

b.) an econometric model that can be estimated and used for inference.

c.) misspecified due to missing information.

d.) heteroskedastic since error terms are no longer random.

Ans: b

Level: Easy

Section: 5.1

2.) How should b_{k} in the general multiple regression model be interpreted?

a.) The number of units of change in the expected value of y for a 1 unit increase in x_{k} when all remaining variables are unchanged

b.) the magnitude by which x_{k} varies in the model

c.) the amount of variation in y explained by x_{k} in the model

d.) the number of variables used in the model.

Ans: a

Level: Moderate

Section: 5.1

3.) Which of the following is not an assumption of the multiple regression model?

a.) The values of each x_{ik} are not random and are not exact linear functions of the other explanatory variables.

b.) var(y_{i}.) = var(e_{i}) = s^{2}

c.) The least squares estimators are BLUE.

d.) cov(y_{i}, y_{j}) = cov(e_{i}, e_{j}) = 0; (i≠j)

Ans: c

Level: Moderate/Difficult

Section: 5.1

4.) What is the unbiased estimator of s^{2} in the multiple regression model?

a.)

b.)

c.)

d.)

Ans: c

Level: Moderate/Difficult

Section: 5.2

5.) Why does the denominator of ŝ_{2} need to be the same as the degrees of freedom in the model?

a.) so we will know how the estimate is distributed if H_{o} is true

b.) so we can extrapolate the results to other values of x

c.) so that the root MSE will be a positive number

d.) so the estimator will be unbiased

Ans: d

Level: Moderate

Section: 5.2

6.) In the multiple regression model which of the following does NOT lead to larger variances of the least squares estimators b_{2} and var(b_{2})?

a.) larger error variances, s^{2}

b.) larger correlation between x_{2} and x_{3}

c.) smaller values of Ʃ(x_{i2} – x̅_{2})^{2}

d.) larger correlation between x_{2} and y

Ans: d

Level: Difficult

Section: 5.3

7.) The matrix below represents the variance-covariance matrix estimated from the multiple regression model:

Which 2 elements of the matrix should always be equal?

a.) A & I

b.) B & H

c.) C & G

d.) D & F

Ans: c

Level: Easy

Section: 5.3

8.) The matrix below represents the variance-covariance matrix estimated from the multiple regression model:

Which element of the matrix cannot be negative?

a.) A

b.) B

c.) C

d.) D

Ans: a

Level: Moderate

Section: 5.3

9.) You have estimated a multiple regression model with 6 explanatory variables and an intercept from a sample with 46 observations. What is t_{c} if you want to perform a right-tailed hypothesis test at the .01 level of significance?

a.) 2.426

b.) 2.708

c.) 2.423

d.) 2.704

Ans: a

Level: Easy

Section: 5.3

10.) You estimate a model with 5 explanatory variables and an intercept from a data set with 247 observations. To test hypotheses on this model you should use a t distribution with how many degrees of freedom?

a.) 242

b.) 120

c.) ∞

d.) 241

Ans: d

Level: Easy

Section: 5.3

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