ECON TEST 2 Chapter 4 and 6
Suppose a plot of sales data over time appears to follow an S-shape as illustrated below. ********** dots all over Which of the following is likely that the best forecasting functional form to use for sales data above? a. A linear trend, Sales = a + b T b. 2 A quadratic shape in T, using T-squared as another variable, Sales = a + b T + cT . c. A semi-log form as sales appear to be growing at a constant percentage rate, Ln Sales = a + bT d. 23 A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT + d T .
A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT + d T .
The coefficient of determination measures the proportion of the variation in the independent variable that is "explained" by the regression line. a. true b. false
b. false
The correlation coefficient ranges in value between 0.0 and 1.0. a. true b. false
b. false
Which is NOT true about the coefficient of determination? a) As you add more variables, the R-square generally rises. b) As you add more variables, the adjusted R-square can fall. c) If the R-square is above 50%, the regression is considered significant. d)The R-square gives the percent of the variation in the dependent variable that is explained by the independent variables. e)The higher is the R-square, the better is the fit.
If the R-square is above 50%, the regression is considered significant.
Purchasing power parity or PPP says the ratios composed of: a. interest rates explain the direction of exchange rates.b. growth rates explain the direction of exchange rates.c. inflation rates explain the direction of exchange rates. d. services explain the direction exchange rates. e. public opinion polls explain the direction of exchange rates.
c. inflation rates explain the direction of exchange rates.
Mr. Geppetto uses exponential smoothing to predict revenue in his wood carving business. He uses a weight of ω = .4 for the naïve forecast and (1-ω) = .6 for the past forecast. What revenue did he predict for March using the data below? Select closet answer. MONTH REVENUE Nov 100 100Dec 90 100Jan 115 ---- Feb 110 ---- MARCH ? ? a. 106.2 b. 104.7 c. 103.2 d. 102.1 e. 101.7
a. 106.2
Novo Nordisk A/S, a Danish firm, sells insulin and other drugs worldwide. Activella, an estrogen and progestin hormone replacement therapy sold by Novo-Nordisk, is examined using 33 quarters of data Y = -204 + . 34X1 - .17X2 (17.0) (-1.71) Using the data for Novo-Nordisk, which is correct? a. Both X1 and X2 are statistically significant. b. Neither X1 nor X2 are statistically significant.c. X1 is statistically significant but X2 is not statistically significant. d. X1 is not statistically significant but X2 is statistically significant.e. The Durbin-Watson statistic shows significant problems with autocorrelation
a. Both X1 and X2 are statistically significant.
US and Canada can both grow wheat and can do mining. Use the following table to look for which country has a comparative advantage in mining. (HINT: Find the cost of mining in terms of wheat in each country.) Absolute Cost in US Absolute Cost in Canada Wheat $5 C$8Mining $10 C$12 a. Canada has a comparative advantage in mining.b. The US has a comparative advantage in mining.c. No comparative advantage in mining exists for either nation.d. We must first know the exchange rate to be able to answer this question. e. Both a and b.
a. Canada has a comparative advantage in mining.
Using demand and supply curves for the Japanese yen based on the $/¥ price for yen, an increase in US INFLATION RATES would a. Decrease the demand for yen and decrease the supply of the yen. b. Increase the demand for yen and decrease the supply of the yen. c. Increase the demand and increase the supply of yen.d. Decrease both the supply and the demand of yen. e. Have no impact on the demand or supply of the yen.
a. Decrease the demand for yen and decrease the supply of the yen.
Simplified trend models are generally appropriate for predicting the turning points in an economic time series. a. true b. false
false
Consider the following multiplicative demand function where QD = quantity demanded, P = selling price, and Y = disposable income: The coefficient of Y (i.e., .2) indicates that (all other things being held constant):a. for a one percent increase in disposable income, quantity demanded would increase by .2 percent b. for a one unit increase in disposable income, quantity demanded would increase by .2 units c. for a one percent increase in disposable income quantity demanded would increase by .2 units d. for a one unit increase in disposable income, quantity demanded would increase by .2 percent e. none of the above
a. for a one percent increase in disposable income, quantity demanded would increase by .2 percent
The type of economic indicator that can best be used for business forecasting is the: a. leading indicator b. coincident indicator c. lagging indicator d. current business inventory indicator e. optimism/pessimism indicator
a. leading indicator
In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will a. raise the value of the currency b. lower the nominal interest rate c. increase the volume of trading in the foreign exchange market d. lower the trade-weighted exchange rate e. increase consumer inflation.
a. raise the value of the currency
Even though insignificant explanatory variables can raise the adjusted R2 of a demand function, one should not interpret their effects on the regression when a. testing marketing hypotheses about the determinants of demand b. analyzing inventory relative to capacity requirementsc. forecasting unit sales for operations planningd. sales revenue reaches its peak e. planning for capital budgets
a. testing marketing hypotheses about the determinants of demand
The coefficient of determination ranges in value between 0.0 and 1.0. a. true b. false
a. true
The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time a. increase exports b. reduce the competitive pressure on prices c. lower the value of the currency in the country with the higher inflation rate d. increase foreign aide. increase the speculative demand for the currency
c. lower the value of the currency in the country with the higher inflation rate
Caution must be exercised in using regression models for prediction when: a) the value of the independent variable lies inside the range of observations from which the model was estimated b) the value of the independent variable lies outside the range of observations from which the model was estimated c)diminishing returns are present d)the existence of saturation levels are present 3) none of the above
b) the value of the independent variable lies outside the range of observations from which the model was estimated
One commonly used test in checking for the presence of autocorrelation when working with time series data is the ____. a. F-test b. Durbin-Watson test c. t-test d. z-test e. none of the above
b. Durbin-Watson test
If the domestic prices for traded goods rises 5% in Japan and 7% in the US in the same time period what would happened to the Yen/US dollar exchange rate? HINT: S1/S0 = (1+πh) / (1+ πf) where S0 is the direct quote of the yen at time 0, the current period. a. The direct quote of the yen ($/¥) rises, and the value of the dollar falls. b. The direct quote of the yen ($/¥) falls, and the value of the dollar rises. c. The direct quote of the yen would remain the same.d. Purchasing power parity does not apply to inflation rates. e. Both a and d.
b. The direct quote of the yen ($/¥) falls, and the value of the dollar rises
If Janet Yellen, Chair of the Federal Reserve Board, begins to tighten monetary policy by raising US interest rates next year, what is the likely impact on the value of the dollar? a. The value of the dollar falls when US interest rates rise. b. The value of the dollar rises when US interest rates rise. c. The value of the dollar is not related to US interest rates. d. This is known as Purchasing Power Parity or PPP. e. The Federal Reserve has no impact at all on interest rates.
b. The value of the dollar rises when US interest rates rise.
. The use of quarterly data to develop the forecasting model Yt = a +bYt−1 is an example of which forecasting technique? a. Barometric forecasting b. Time-series forecasting c. Survey and opinion d. Econometric methods based on an understanding of the underlying economic variables involved e. Input-output analysis
b. Time-series forecasting
Appendix:In regression analysis, the existence of a significant pattern in successive values of the error term constitutes: a. heteroscedasticity b. autocorrelation c. multicollinearity d. nonlinearities e. a simultaneous equation relationship
b. autocorrelation
In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0? a. the identification problem b. autocorrelation c. multicollinearity d. heteroscedasticity e. agency problems
b. autocorrelation
The variation in an economic time-series which is caused by major expansions or contractions usually of greater than a year in duration is known as: a. secular trend b. cyclical variation c. seasonal effect d. unpredictable random factor e. none of the above
b. cyclical variation
When using a multiplicative power function (Y = a X1b1X2b2X3b3) to represent an economic relationship, estimates of the parameters (a, and the b's) using linear regression analysis can be obtained by first applying a ____ transformation to convert the function to a linear relationship. a. semilogarithmic b. double-logarithmic c. reciprocal d. polynomiale. cubic
b. double-logarithmic
Consider the following linear demand function where QD = quantity demanded, P = selling price, and Y = disposable income: QD = −36 −2.1P + .24Y The coefficient of P (i.e., −2.1) indicates that (all other things being held constant):a. for a one percent increase in price, quantity demanded would decline by 2.1 percent b. for a one unit increase in price, quantity demanded would decline by 2.1 units c. for a one percent increase in price, quantity demanded would decline by 2.1 units d. for a one unit increase in price, quantity demanded would decline by 2.1 percent e. none of the above
b. for a one unit increase in price, quantity demanded would decline by 2.1 units
Companies that reduce their margins on export products in the face of appreciation of their home currency may be motivated by a desire to a. sacrifice market share abroad but build market share at home b. increase production volume to realize learning curve advantages c. sell foreign plants and equipment to lower their debt d. reduce the costs of transportation e. all of the above
b. increase production volume to realize learning curve advantages
Which of the following barometric indicators would be the most helpful for forecasting future sales for an industry? a. lagging economic indicators. b. leading economic indicators. c. coincident economic indicators. d. wishful thinking e. none of the above
b. leading economic indicators.
When two or more "independent" variables are highly correlated, then we have: a. the identification problem b. multicollinearity c. autocorrelation d. heteroscedasticity e. complementary products
b. multicollinearity
The estimated slope coefficient (b) of the regression equation (Ln Y = a + b Ln X) measures the ____ change in Y for a one ____ change in X. a. percentage, unit b. percentage, percent c. unit, unit d. unit, percent e. none of the above
b. percentage, percent
When there is multicollinearity in an estimated regression equation, a. the coefficients are likely to be small. b. the t-statistics are likely to be small even though the R2 is large. c. the coefficient of determination is likely to be small.d. the problem of omitted variables is likely.e. the error terms will tend to have a cyclical pattern.
b. the t-statistics are likely to be small even though the R2 is large.
All of the following are criteria used to select a forecasting technique EXCEPT: a. the accuracy required of the forecasting model b. the time required to complete the model c. the complexity of the relationships being forecast d. the cost associated with developing the forecasting model e. all of these are criteria used to select a forecasting technique
b. the time required to complete the model
Regarding operating risk exposure, which of the following statements is NOT true? a. they are more difficult to hedge than transaction risk exposures b. they are easier to forecast than translation risk exposures c. they necessitate more managerial attention and extensive analysis d. only a and b e. all of the above are true
b. they are easier to forecast than translation risk exposures
A study of expenditures on food in cities resulting in the following equation: Log E = 0.693 Log Y + 0.224 Log N where E is Food Expenditures; Y is total expenditures on goods and services; and N is the size of the family. This evidence implies: a. that as total expenditures on goods and services rises, food expenditures falls. b. that a one-percent increase in family size increases food expenditures .693%. c. that a one-percent increase in family size increases food expenditures .224%. d. that a one-percent increase in total expenditures increases food expenditures 1%. e. that as family size increases, food expenditures go down.
c. that a one-percent increase in family size increases food expenditures .224%.
Examine the plot of data. Sales ♥♥♥ ♥♥♥♥♥ ♥♥ TimeIt is likely that the best forecasting method for this plot would be: a. a two-period moving average b. a secular trend upward c. a seasonal pattern that can be modeled using dummy variables or seasonal adjustments d. a semi-log regression model e. a cubic functional form
c. a seasonal pattern that can be modeled using dummy variables or seasonal adjustments
Time-series forecasting models:a. are useful whenever changes occur rapidly and wildly b. are more effective in making long-run forecasts than short-run forecasts c. are based solely on historical observations of the values of the variable being forecasted d. attempt to explain the underlying causal relationships which produce the observed outcome e. none of the above
c. are based solely on historical observations of the values of the variable being forecasted
Regarding short-range exchange rate movements, which of the following statements is NOT true? a. they may vary from week to week b. they may vary from hour to hour c. are similar to those of the transaction demand determinants of long-term trends in exchange rates d. determined by arbitrage activity e. both a and b are false
c. are similar to those of the transaction demand determinants of long-term trends in exchange rates
For studying demand relationships for a proposed new product that no one has ever used before, what would be the best method to use? a. ordinary least squares regression on historical datab. market experiments, where the price is set differently in two marketsc. consumer surveys, where potential customers hear about the product and are asked their opinions d. double log functional form regression modele. all of the above are equally useful in this case
c. consumer surveys, where potential customers hear about the product and are asked their opinions
In a recession, the trade balance often improves because a. service exports exceed manufactured good exports b. banks sell depressed assets c. fewer households can afford luxury imports d. direct investment abroad declines e. the capital account exceeds the current account
c. fewer households can afford luxury imports
An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from a. higher anticipated costs of production in the U.S. b. higher interest rates and higher inflation in the U.S. c. higher growth rates in the trading partner's economy d. a change in the terms of trade e. lower export industry productivity
c. higher growth rates in the trading partner's economy
Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example? a. time-series forecasting techniques b. barometric techniques c. survey techniques and opinion polling d. econometric techniques e. input-output analysis
c. survey techniques and opinion polling
The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to: a. 1.0b. their minimum values c. their average values d. 0.0 e. none of the above
d. 0.0
If the value of the U.S. dollar rises from 1.0 per dollar to 1.3 per dollar, a. imports of automobiles from Germany will decline b. American inflation will increase c. German exports of all traded goods will decline d. American exports to Germany will decrease e. sales by American manufacturers for the export markets will increase.
d. American exports to Germany will decrease
The optimal currency area involves a trade-off of reducing transaction costs but the inability to use changes in exchange rates to help ailing regions. If the US, Canada, and Mexico had one single currency (the Peso-Dollar) we would tend to see all of the following EXCEPT: a. Even more intraregional trade of goods across the three countries.b. Lower transaction costs of trading within North America.c. A greater difficulty in helping Mexico as you can no longer deflate the Mexican peso. d. Less migration of workers across the three countries.e. An elimination of correlated macroeconomic shocks across the countries.
d. Less migration of workers across the three countries.
Regarding forecasting, which of the following statements is NOT true? a. Operations managers need sales forecasts to plan future production. b.Financial managers need estimates of future sales revenues, disbursements & capital expenditures in order to plan effectively. c.Forecasts of credit conditions are needed to plan the cash needs of the firm. d.Public administrators and managers of NFP corporations need not forecast, since they need not make a profit. e. Both c and d are false.
d. Public administrators and managers of NFP corporations need not forecast, since they need not make a profit.
Seasonal variations can be incorporated into a time-series model in a number of different ways, including: a. ratio-to-trend method b. use of dummy variables c. root mean squared error method d. a and b only e. a, b, and c
d. a and b only
In the last twenty-five years, the Yen and German mark and now the Euro have a. fluctuated widely against the dollar b. appreciated against the dollar and then depreciated against the dollar c. exchanged without restrictions d. all of the above e. none of the above
d. all of the above
The import of Apple iPads assembled in Shanghai at a $295 wholesale price ($213 cost and $82 profit margin) adds more than it should to the U.S. trade deficit with China because a. Chinese assembly labor represents only 47 % of the wholesale cost b. the iPad's popularity has triggered an enormous number of unit sales c. wholesale prices only count in the trade statistics if final product prices are higher d. as with foreign-assembled minivans, most of the subassembly components come from the U.S. e. the Chinese yuan is a managed currency
d. as with foreign-assembled minivans, most of the subassembly components come from the U.S.
In addition to prediction, one purpose of regression analysis is:a. to measure the overall "fit" of the model to the sample observations b. to test whether the slope parameter β is equal to some particular value c. to test whether the slope parameter β is equal to zero d. b and c e. none of the above
d. b and c
The forecasting technique which attempts to forecast short-run changes and makes use of economic indicators known as leading, coincident or lagging indicators is known as: a. econometric technique b. time-series forecasting c. opinion polling d. barometric technique e. judgment forecasting
d. barometric technique
An appreciation of the U.S. dollar has what impact on Harley-Davidson (HD), a U.S. manufacturer of motorcycles? a. domestic sales of HD motorcycles increase and foreign sales of HD motorcycles increase b. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles increase c. domestic sales of HD motorcycles increase and foreign sales of HD motorcycles decrease d. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease e. only manufacturers who produce traded goods are affected
d. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease
Demand functions in the multiplicative form are most common for all of the following reasons except: a. elasticities are constant over a range of data b. ease of estimation of elasticities c. exponents of parameters are the elasticities of those variables d. marginal impact of a unit change in an individual variable is constant e. c and d
d. marginal impact of a unit change in an individual variable is constant
If two alternative economic models are offered, other things equal, we would a. tend to pick the one with the lowest R2. b. select the model that is the most expensive to estimate. c. pick the model that was the most complex. d. select the model that gave the most accurate forecasts e. all of the above
d. select the model that gave the most accurate forecasts
The standard deviation of the error terms in an estimated regression equation is known as: a. coefficient of determination b. correlation coefficient c. Durbin-Watson statistic d. standard error of the estimate e. none of the above
d. standard error of the estimate
European Union labor costs exceed U.S. and British labor costs primarily because a. worker productivity is lower in the EU b. union wages are higher in the EU c. layoffs and plant closings are more restrictive in the U.S. and Britain d. the amount of paid time off is higher in the EUe. labor-management relations are better in the EU
d. the amount of paid time off is higher in the EU
The Identification Problem in the development of a demand function is a result of: a. the variance of the demand elasticity b. the consistency of quantity demanded at any given point c. the negative slope of the demand function d. the simultaneous relationship between the demand and supply functions e. none of the above
d. the simultaneous relationship between the demand and supply functions
Smoothing techniques are a form of ____ techniques which assume that there is an underlying pattern to be found in the historical values of a variable that is being forecast. a. opinion polling b. barometric forecasting c. econometric forecasting d. time-series forecasting e. none of the above
d. time-series forecasting
In testing whether each individual independent variables (Xs) in a multiple regression equation is statistically significant in explaining the dependent variable (Y), one uses the: a. F-test b. Durbin-Watson test c. t-test d. z-test e. none of the above
d. z-test
In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17 - 102.56 Price + 1.00 Income + 3.94Temp R-Sq = 54.1% R-Sq(adj) = 51.0% From the linear regression results in the cans case above, we know that: a. Price is insignificant b. Income is significant c. Temp is significant d.As price rises for soda, people tend to drink less of it e.All of the coefficients are significant
d.As price rises for soda, people tend to drink less of it
An example of a time series data set is one for which the: a. data would be collected for a given firm for several consecutive periods (e.g., months). b. data would be collected for several different firms at a single point in time. c. regression analysis comes from data randomly taken from different points in time. d. data is created from a random number generation program. e. use of regression analysis would impossible in time series.
data would be collected for a given firm for several consecutive periods (e.g., months).
Emma uses a linear model to forecast quarterly same-store sales at the local Garden Center. The results of her multiple regression is: Sales = 2,800 + 200•T - 350•D where T goes from 1 to 16 for each quarter of the year from the first quarter of 2006 ('06I) through the fourth quarter of 2009 ('09 IV). D is a dummy variable which is 1 if sales are in the cold and dreary first quarter, and zero otherwise, because the months of January, February, and March generate few sales at the Garden Center. Use this model to estimate sales in a store for the first quarter of 2010 in the 17th month; that is: {2010 I}. Emma's forecast should be: a. 5,950 b. 6,200 c. 6,350 d. 6,000 e. 5,850
e. 5,850
Using a sample of 100 consumers, a double-log regression model was used to estimate demand for gasoline. Standard errors of the coefficients appear in the parentheses below the coefficients. Ln Q = 2.45 -0.67 Ln P + . 45 Ln Y - .34 Ln Pcars (.20) (.10) (.25) Where Q is gallons demanded, P is price per gallon, Y is disposable income, and Pcars is a price index for cars. Based on this information, which is NOT correct? a. Gasoline is inelastic. b. Gasoline is a normal good. c. Cars and gasoline appear to be mild complements. d. The coefficient on the price of cars (Pcars) is insignificant. e. All of the coefficients are insignificant.
e. All of the coefficients are insignificant.
In a regression equation, one may measure the accuracy of the estimation by: a. calculating the standard deviation of the errors of prediction b. calculating the standard error of the estimate c. estimating the standard deviation of the errors of prediction d. all of the above e. a and b only
e. a and b only
The assumptions underlying the simple linear regression model are: a. the value of the dependent variable Y is postulated to be a random variable b. a theoretical straight-line relationship exists between X and the expected value of Y c. associated with each value of X is a probability distribution d. the disturbance term is assumed to be an independent random variable e. a through c f. b through d
e. a through c
The presence of association between two variables does not necessarily imply causation for the following reason(s): a. the association between two variables may result simply from pure chance b. the association between two variables may be the result of the influence of a third common factor c. both variables may be the cause and the effect at the same time d. a and b e. a, b, and c
e. a, b, and c
Variations in a time-series forecast can be caused by: a. cyclical variations b. secular trends c. seasonal effects d. a and b only e. a, b, and c
e. a, b, and c
When a manufacturer's home currency appreciates substantially, a. domestic sales declineb. foreign sales declinec. company-owned foreign plant and equipment will increase d. margins often decline e. all of the above
e. all of the above
Select the correct statement.a. Qualitative forecasts give the direction of change.b. Quantitative forecasts give the exact amount or exact percentage change.c. Diffusion forecasts use the proportion of the forecasts that are positive to forecast up or down. d. Surveys are a form of qualitative forecasting.e. all of the above are correct.
e. all of the above are correct.
The principal econometric techniques used in measuring demand relationships are: a. the standard deviation b. regression c. correlation analysis d. the coefficient of determination e. both b and c
e. both b and c
In Chinese coastal provinces, brick housing for a fast expanding middle class is very comparable in size to housing in the U.S. for a family with median income of $51,000 because a. median income per capita has risen in China to nearly equal median income in the U.S. b. the Chinese government builds much of the housing in China c. construction companies have begun to migrate to the coastal provinces of China d. housing is an income inferior good e. bricks, trade skill workers and construction labor are very cheap in China
e. bricks, trade skill workers and construction labor are very cheap in China
Trading partners should diversify in consumption because a. out-of-pocket costs of production decline b. free trade areas protect infant industries c. economies of scale are present d. manufacturers face diminishing returns e. more goods are available for consumption
e. more goods are available for consumption
Appendix:In regression analysis, the existence of a high degree of intercorrelation among some or all of the explanatory variables in the regression equation constitutes: a. autocorrelation b. a simultaneous equation relationship c. nonlinearitiesd. heteroscedasticity e. multicollinearity
e. multicollinearity
If the British pound (£) appreciates by 10% against the dollar: a. both the US importers from Britain and US exporters to Britain will be helped by the appreciating pound. b. the US exporters will find it harder to sell to foreign customers in Britain. c. the US importer of British goods will tend to find that their cost of goods rises, hurting its bottom line. d. both US importers of British goods and exporters to Britain will be unaffected by changes in exchange rates. foreign e. all of the above.
the US importer of British goods will tend to find that their cost of goods rises, hurting its bottom line.
. In the first-order exponential smoothing model, the new forecast is equal to a weighted average of the old forecast and the actual value in the most recent period. a. true b. false
true