Econometrics Final Questions
True or False 16. Whenever the dependent variable takes on just a few values it is close to a normal distribution.
False
True or False 18. H1: βj ≠ 0, where βj is a regression coefficient associated with an explanatory variable, represents a one-sided alternative hypothesis.
False
True or False 19. If^β1 and ^β2 are estimated values of regression coefficients associated with two explanatory variables in a regression equation, then the standard error (^β1 -^β2) = standard error (^β1) - standard error (^β2).
False
True or False An explanatory variable is said to be exogenous if it is correlated with the error term
False
True or False The coefficient of determination (R2) decreases when an independent variable is added to a multiple regression model.
False
True or False. The key assumption for the general multiple regression model is that all factors in the unobserved error term be correlated with the explanatory variables.
False
True or False 17. If the calculated value of the t statistic is greater than the critical value, the null hypothesis, H0 is rejected in favor of the alternative hypothesis, H1.
True
True or False 20. Standard errors must always be positive.
True
True or False A larger error variance makes it difficult to estimate the partial effect of any of the independent variables on the dependent variable.
True
True or False. The term "linear" in a multiple linear regression model means that the equation is linear in parameters.
True
The explained sum of squares for the regression function, y1 = b0 +b1x1 + u1, is defined as _____. (yi-y^)^2
(yi-y^)^2
12. If the residual sum of squares (SSR) in a regression analysis is 66 and the total sum of squares (SST) is equal to 90, what is the value of the coefficient of determination? a. 0.73 b. 0.55 c. 0.27 d. 1.2
1-66/90 = .27 C.
11. Suppose the variable x2 has been omitted from the following regression equation, y=β0+β1x1+β2x2+u. ~β1 is the estimator obtained when x2 is omitted from the equation. If E(~β1) >β1,~β1 is said to _____. a. have an upward bias b. have a downward bias c. be unbiased d. be biased toward zero
A.
13. The term _____ refers to the problem of small sample size. a. micronumerosity b. multicollinearity c. homoskedasticity d. heteroskedasticity
A.
15. Which of the following correctly identifies a reason why some authors prefer to report the standard errors rather than the t statistic? a. Having standard errors makes it easier to compute confidence intervals. b. Standard errors are always positive. c. The F statistic can be reported just by looking at the standard errors. d. Standard errors can be used directly to test multiple linear regressions.
A.
6. If an independent variable in a multiple linear regression model is an exact linear combination of other independent variables, the model suffers from the problem of _____. a. perfect collinearity b. homoskedasticity c. heteroskedasticty d. omitted variable bias
A.
8. Exclusion of a relevant variable from a multiple linear regression model leads to the problem of _____. a. misspecification of the model b. multicollinearity c. perfect collinearity d. homoskedasticity
A.
9. Suppose the variable x2 has been omitted from the following regression equation, y=β0+β1x1+β2x2+u. ~β1 is the estimator obtained when x2 is omitted from the equation. The bias in ~ β1 is positive if _____. a. β2 >0 and x 1 and x 2 are positively correlated b. β2 <0 and x 1 and x 2 are positively correlated c. β2 >0 and x 1 and x 2 are negatively correlated d. β2 = 0 and x 1 and x 2 are negatively correlated
A.
Which of the following statements is true? a. Taking a log of a nonnormal distribution yields a distribution that is closer to normal. b. The mean of a nonnormal distribution is 0 and the variance is σ2. c. The CLT assumes that the dependent variable is unaffected by unobserved factors. d. OLS estimators have the highest variance among unbiased estimators.
A.
10. Suppose the variable x2 has been omitted from the following regression equation, y=β0+β1x1+β2x2+u.~β1 is the estimator obtained when x2 is omitted from the equation. The bias in ~β1 is negative if _____. a. β2>0 and x 1 and x 2 are positively correlated b.β2<0 and x 1 and x 2 are positively correlated c.β2=0 and x 1 and x 2 are negatively correlated d.β2=0 and x 1 and x 2 are negatively correlated
B.
12. Which of the following correctly defines F statistic if SSRr represents sum of squared residuals from the restricted model of hypothesis testing, SSRur represents sum of squared residuals of the unrestricted model, and q is the number of restrictions placed? a. F = (SSRur −SSR r )/q / SSRur /(n−k−1) b. F = (SSRr −SSRur )/q / SSRur /(n−k−1) c. F = (SSRur−SSRr )/q / SSRr/(n−k−1) d. F = (SSRur −SSRr )/(n−k−1) / SSRur /q
B.
13. Which of the following statements is true? a. If the calculated value of F statistic is higher than the critical value, we reject the alternative hypothesis in favor of the null hypothesis. b. The F statistic is always nonnegative as SSRr is never smaller than SSRur. c. Degrees of freedom of a restricted model is always less than the degrees of freedom of an unrestricted model. d. The F statistic is more flexible than the t statistic to test a hypothesis with a single restriction.
B.
14. Find the degrees of freedom in a regression model that has 10 observations and 7 independent variables. a. 17 b. 2 c. 3 d. 4
B.
8. Which of the following statements is true of confidence intervals? a. Confidence intervals in a CLM are also referred to as point estimates. b. Confidence intervals in a CLM provide a range of likely values for the population parameter. c. Confidence intervals in a CLM do not depend on the degrees of freedom of a distribution. d. Confidence intervals in a CLM can be truly estimated when heteroskedasticity is present.
B.
Consider the equation, Y = β1 + β2X2 + u. A null hypothesis, H0: β2 = 0 states that: a. X2 has no effect on the expected value of β2. b. X2 has no effect on the expected value of Y. c. β2 has no effect on the expected value of Y. d. Y has no effect on the expected value of X2
B.
Which of the following is a statistic that can be used to test hypotheses about a single population parameter? a. F statistic b. t statistic c. χ2 statistic d. Durbin Watson statistic
B.
Consider the following regression equation: y=β1+β2x1+β2x2+u . What does β1 imply? a. β1 measures the ceteris paribus effect of x1 on x2 b. β1 measures the ceteris paribus effect of y on x1 c. β1 measures the ceteris paribus effect of x1 on y. d. β1 measures the ceteris paribus effect of x1 on u
C
In the equation, y=β0+β1x1+β2x2+u β2 is a(n) _____. a. independent variable b. dependent variable c. slope parameter d. intercept parameter
C
16. _____ has a causal effect on _____. a. Income; unemployment b. Height; health c. Income; consumption d. Age; wage
C income and consumption
10. Which of the following tools is used to test multiple linear restrictions? a. t test b. z test c. F test d. Unit root test
C.
11. Which of the following statements is true of hypothesis testing? a. The t test can be used to test multiple linear restrictions. b. A test of single restriction is also referred to as a joint hypotheses test. c. A restricted model will always have fewer parameters than its unrestricted model. d. OLS estimates maximize the sum of squared residuals.
C.
12. High (but not perfect) correlation between two or more independent variables is called _____. a. heteroskedasticty b. homoskedasticty c. multicollinearity d. micronumerosity
C.
14. If R2ur = 0.6873, R2r = 0.5377, number of restrictions = 3, and n - k - 1 = 229, F statistic equals: a. 21.2 b. 28.6 c. 36.5 d. 42.1
C.
15. The Gauss-Markov theorem will not hold if _____. a. the error term has the same variance given any values of the explanatory variables b. the error term has an expected value of zero given any values of the independent variables c. the independent variables have exact linear relationships among them d. the regression model relies on the method of random sampling for collection of data
C.
3. A normal variable is standardized by: a. subtracting off its mean from it and multiplying by its standard deviation. b. adding its mean to it and multiplying by its standard deviation. c. subtracting off its mean from it and dividing by its standard deviation. d. adding its mean to it and dividing by its standard deviation.
C.
6. The significance level of a test is: a. the probability of rejecting the null hypothesis when it is false. b. one minus the probability of rejecting the null hypothesis when it is false. c. the probability of rejecting the null hypothesis when it is true. d. one minus the probability of rejecting the null hypothesis when it is true.
C.
The value of R2 always _____. a. lies below 0 b. lies above 1 c. lies between 0 and 1 d. lies between 1 and 1.5
C.
4. An empirical analysis relies on _____ to test a theory. a. common sense b. ethical considerations c. data d. customs and conventions
C. Data
Which of the following is a nonlinear regression model? y = a0 +b1x^1/2 +u
C. y = a0 +b1x^1/2 +u
3. If the explained sum of squares is 35 and the total sum of squares is 49, what is the residual sum of squares? a. 10 b. 12 c. 18 d. 14
D.
4. Which of the following is true of R2? a. R2 is also called the standard error of regression. b. A low R2 indicates that the Ordinary Least Squares line fits the data well. c. R2 usually decreases with an increase in the number of independent variables in a regression. d. R2 shows what percentage of the total variation in the dependent variable, Y, is explained by the explanatory variables.
D.
7. The assumption that there are no exact linear relationships among the independent variables in a multiple linear regression model fails if _____, where n is the sample size and k is the number of parameters. a. n>2 b. n=k+1 c. n>k d. n<k+1
D.
7. The general t statistic can be written as: a. t =Hypothesized value/Standard error c. t =(estimate - hypothesized value)/variance d. t =(estimate - hypothesized value)/standard error
D.
9. Which of the following statements is true? a. When the standard error of an estimate increases, the confidence interval for the estimate narrows down. b. Standard error of an estimate does not affect the confidence interval for the estimate. c. The lower bound of the confidence interval for a regression coefficient, say βj, is given by^β J - [standard error × (^βJ)] d. The upper bound of the confidence interval for a regression coefficient, say βj, is given by ^βJ + [Critical value × standard error (^βJ)
D.
The normality assumption implies that: a. the population error u is dependent on the explanatory variables and is normally distributed with mean equal to one and variance σ2. b. the population error u is independent of the explanatory variables and is normally distributed with mean equal to one and variance σ. c. the population error u is dependent on the explanatory variables and is normally distributed with mean zero and variance σ. d. the population error u is independent of the explanatory variables and is normally distributed with mean zero and variance σ2.
D.
3. Which of the following is true of experimental data? a. Experimental data are collected in laboratory environments in the natural sciences. b. Experimental data cannot be collected in a controlled environment. c. Experimental data is sometimes called observational data. d. Experimental data is sometimes called retrospective data.
a. Experimental data are collected in laboratory environments in the natural sciences.
19. A natural measure of the association between two random variables is the correlation coefficient. a. True b. False
a. true
20. Simple regression is an analysis of correlation between two variables. a. True b. False
a. true
21. An economic model consists of mathematical equations that describe various relationships between economic variables. a. True b. False
a. true
22. R 2 is the ratio of the explained variation compared to the total variation. a. True b. False
a. true
25. In general, the constant that produces the smallest sum of squared deviations is always the sample average. a. True b. False
a. true
25. The notion of ceteris paribus means "other factors being equal." a. True b. False
a. true
5. The term 'u' in an econometric model is usually referred to as the _____. a. error term b. parameter c. hypothesis d. dependent variable
a. error term
7. The parameters of an econometric model _____. a. include all unobserved factors affecting the variable being studied b. describe the strength of the relationship between the variable under study and the factors affecting it c. refer to the explanatory variables included in the model d. refer to the predictions that can be made using the model
a. include all unobserved factors affecting the variable being studied
6. The constants of econometric models are referred to as _____. a. parameters b. statistics c. error terms d. hypotheses
a. parameters
4. In the equation , what is the estimated value of ? a. ybar- b1xbar
a. ybar- b1xbar
11. If the total sum of squares (SST) in a regression equation is 81, and the residual sum of squares (SSR) is 25, what is the explained sum of squares (SSE)? a. 64 b. 56 c. 32 d. 18
b. 81-25=56 b.
14. Which of the following refers to panel data? a. Data on the unemployment rate in a country over a 5-year period Cengage Learning Testing, Powered by Cognero b. Data on the birth rate, death rate and population growth rate in developing countries over a 10-year period. c. Data on the income of 5 members of a family on a particular year. d. Data on the price of a company's share during a year.
b. Data on the birth rate, death rate and population growth rate in developing countries over a 10-year period.
15. Which of the following is a difference between panel and pooled cross-sectional data? a. A panel data set consists of data on different cross-sectional units over a given period of time while a pooled data set consists of data on the same cross-sectional units over a given period of time. b. A panel data set consists of data on the same cross-sectional units over a given period of time while a pooled data set consists of data on different cross-sectional units over a given period of time c. A panel data consists of data on a single variable measured at a given point in time while a pooled data set consists of data on the same cross-sectional units over a given period of time. d. A panel data set consists of data on a single variable measured at a given point in time while a pooled data set consists of data on more than one variable at a given point in time.
b. A panel data set consists of data on the same cross-sectional units over a given period of time while a pooled data set consists of data on different cross-sectional units over a given period of time
2. Nonexperimental data is called _____. a. cross-sectional data b. observational data c. time series data d. panel data
b. Observational data
17. Which of the following is true? C a. A variable has a causal effect on another variable if both variables increase or decrease simultaneously. b. The notion of 'ceteris paribus' plays an important role in causal analysis. c. Difficulty in inferring causality disappears when studying data at fairly high levels of aggregation. d. The problem of inferring causality arises if experimental data is used for analysis.
b. The notion of 'ceteris paribus' plays an important role in causal analysis.
17. In the regression of y on x, the error term exhibits heteroskedasticity if _____. a. it has a constant variance b. Var(y|x) is a function of x c. x is a function of y d. y is a function of x
b. Var(ylx) is a function of x
1. Econometrics is the branch of economics that _____. a. studies the behavior of individual economic agents in making economic decisions b. develops and uses statistical methods for estimating economic relationships c. deals with the performance, structure, behavior, and decision-making of an economy as a whole d. applies mathematical methods to represent economic theories and solve economic problems
b. develops and uses statistical methods for estimating economic relationships
19. Experimental data are sometimes called retrospective data. a. True b. False
b. false
20. Experimental data are easy to obtain in the social sciences. a. True b. False
b. false
21. The sample covariance between the regressors and the Ordinary Least Square (OLS) residuals is always positive. a. True b. False
b. false
22. Random sampling complicates the analysis of cross-sectional data. a. True b. False
b. false
23. A cross-sectional data set consists of observations on a variable or several variables over time. a. True b. False
b. false
23. There are n-1 degrees of freedom in Ordinary Least Square residuals. a. True b. False
b. false
24. A time series data is also called a longitudinal data set. a. True b. False
b. false
24. The variance of the slope estimator increases as the error variance decreases. a. True b. False
b. false
16. The error term in a regression equation is said to exhibit homoskedasticty if _____. a. it has zero conditional mean b. it has the same variance for all values of the explanatory variable c. it has the same value for all values of the explanatory variable d. if the error term has a value of one given any value of the explanatory variable
b. it has the same variance for all values of the explanatory variable
13. Which of the following is an example of time series data? a. Data on the unemployment rates in different parts of a country during a year. b. Data on the consumption of wheat by 200 households during a year. c. Data on the gross domestic product of a country over a period of 10 years. d. Data on the number of vacancies in various departments of an organization on a particular month.
c. Data on the gross domestic product of a country over a period of 10 years.
8. Which of the following is the first step in empirical economic analysis? a. Collection of data b. Statement of hypotheses c. Specification of an econometric model d. Testing of hypotheses
c. Specification of an econometric model
12. Which of the following is true of time series data? a. The time series data is easier to analyze than cross-sectional data. b. The time series data are independent across time. c. The chronological ordering of observations in a time series conveys potentially important information. d. A time series data set consists of observations on a variable or several variables at a given time.
c. The chronological ordering of observations in a time series conveys potentially important information.
2. If a change in variable x causes a change in variable y, variable x is called the _____. a. dependent variable b. explained variable c. explanatory variable d. response variable
c. explanatory variable
14. In a regression equation, changing the units of measurement of only the independent variable does not affect the _____. a. dependent variable b. slope c. intercept d. error term
c. intercept
18. What is the estimated value of the slope parameter when the regression equation, y = a0 + 1x1 + u passes through the origin?
c. the one that is divided
11. A data set that consists of observations on a variable or several variables over time is called a _____ data set. a. binary b. cross-sectional c. time series d. experimental
c. time series
18. Which of the following terms measures the association between two variables? a. Casual effect b. Independence c. Average d. Correlation
d. correlation
10. Data on the income of law graduates collected at different times during the same year is _____. a. panel data b. experimental data c. time series data d. cross-sectional data
d. cross-sectional data
3. In the equation y =b0 + b1x +u, B0is the _____. a. dependent variable b. independent variable c. slope parameter d. intercept parameter
d. intercept parameter
1. A dependent variable is also known as a(n) _____. a. explanatory variable b. control variable c. predictor variable d. response variable
d. response variable
15. Which of the following is assumed for establishing the unbiasedness of Ordinary Least Square (OLS) estimates? a. The error term has an expected value of 1 given any value of the explanatory variable. b. The regression equation is linear in the explained and explanatory variables. c. The sample outcomes on the explanatory variable are all the same value. d. The error term has the same variance given any value of the explanatory variable.
d. the error term has the same variance given any value of the explanatory variable.
