TEST BANK
PRINCIPLES OF ECONOMETRICS
5TH EDITION
CHAPTER NO. 01: AN INTRODUCTION TO ECONOMETRICS
MULTIPLE CHOICE QUESTION & ANSWERS
1. 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 – Knowledge
AACSB: Reflective Thinking
Section: 1.1
2. Which of the following questions is a type that tools of econometrics are meant to
answer?
a. If goods A and B are substitutes and the price of good A increases by $0.50,
by how much will the sales of good B change by?
b. If goods A and B are substitutes and the price of good A increases, how will
this affect the demand for good B?
c. If an income increase causes the sales of good A to fall, everything else held
constant, what type of good is good A?
d. Everything else the same, would the price of good A be higher in a
competitive industry or a monopolistic industry?
,Ans: a
Level: Medium – Application
AACSA: Analytic
Section: 1.1
3. Consider the model Q d = f ( P, P s , P c , INC ) where Q d is quantity demanded of a
particular product per month, P is the price of the product, P s is the price of
substitutes, P c is the price of complements, and INC is monthly income. This
equation represents _____.
a. a non-linear model
b. an economic model
c. an econometric model
d. an interval forecast
Ans: b
Level: Easy – Comprehension
AACSB: Reflective Thinking
Section: 1.2
4. 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: Medium – Analysis
,AACSB: Analytic
Section: 1.2
5. 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: Medium – Analysis
AACSB: Analytic
Section: 1.3
6. Refer to the equation Q s =β1 + β 2 P + β3 P r + β 4 P s + β5TAX + e where Q s is annual
quantity supplied, P is the price of the product, P r is the price of resources, P s is the
price of goods that are substitutes in production, and 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 – Comprehension
, AACSB: Reflective Thinking
Section: 1.3
7. Refer to the equation Q s =β1 + β 2 P + β3 P r + β 4 P s + β5TAX + e where Q s is annual
quantity supplied, P is the price of the product, P r is the price of resources, P s is the
price of goods that are substitutes in production, and TAX is the excise tax on the
product. In this equation, β1 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 – Comprehension
AACSB: Reflective Thinking
Section: 1.3
8. 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: Easy – Knowledge
AACSB: Reflective Thinking
Section: 1.3
PRINCIPLES OF ECONOMETRICS
5TH EDITION
CHAPTER NO. 01: AN INTRODUCTION TO ECONOMETRICS
MULTIPLE CHOICE QUESTION & ANSWERS
1. 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 – Knowledge
AACSB: Reflective Thinking
Section: 1.1
2. Which of the following questions is a type that tools of econometrics are meant to
answer?
a. If goods A and B are substitutes and the price of good A increases by $0.50,
by how much will the sales of good B change by?
b. If goods A and B are substitutes and the price of good A increases, how will
this affect the demand for good B?
c. If an income increase causes the sales of good A to fall, everything else held
constant, what type of good is good A?
d. Everything else the same, would the price of good A be higher in a
competitive industry or a monopolistic industry?
,Ans: a
Level: Medium – Application
AACSA: Analytic
Section: 1.1
3. Consider the model Q d = f ( P, P s , P c , INC ) where Q d is quantity demanded of a
particular product per month, P is the price of the product, P s is the price of
substitutes, P c is the price of complements, and INC is monthly income. This
equation represents _____.
a. a non-linear model
b. an economic model
c. an econometric model
d. an interval forecast
Ans: b
Level: Easy – Comprehension
AACSB: Reflective Thinking
Section: 1.2
4. 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: Medium – Analysis
,AACSB: Analytic
Section: 1.2
5. 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: Medium – Analysis
AACSB: Analytic
Section: 1.3
6. Refer to the equation Q s =β1 + β 2 P + β3 P r + β 4 P s + β5TAX + e where Q s is annual
quantity supplied, P is the price of the product, P r is the price of resources, P s is the
price of goods that are substitutes in production, and 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 – Comprehension
, AACSB: Reflective Thinking
Section: 1.3
7. Refer to the equation Q s =β1 + β 2 P + β3 P r + β 4 P s + β5TAX + e where Q s is annual
quantity supplied, P is the price of the product, P r is the price of resources, P s is the
price of goods that are substitutes in production, and TAX is the excise tax on the
product. In this equation, β1 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 – Comprehension
AACSB: Reflective Thinking
Section: 1.3
8. 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: Easy – Knowledge
AACSB: Reflective Thinking
Section: 1.3
