TESTBANK for Introduction to Econometrics KEY Questions and Answers

Binary variables a. are generally used to control for outliers in your sample. b. can take on more than two values. c. exclude certain individuals from your sample. d. can take on only two values. - D In the simple linear regression model, the regression slope a. indicates by how many percent Y increases, given a one percent increase in X. b. when multiplied with the explanatory variable will give you the predicted Y. c. indicates by how many units Y increases, given a one unit increase in X. d. represents the elasticity of Y on X. - C The regression R2 is a measure of a. whether or not X causes Y. b. the goodness of fit of your regression line. c. whether or not ESS TSS. d. the square of the determinant of R. - B In the simple linear regression model Y= B0+B1Xi+ui, a. the intercept is typically small and unimportant. b. B0+B1Xi represents the population regression function. c. the absolute value of the slope is typically between 0 and 1. d. B0+B1Xi represents the sample regression function. - B E(ui | Xi) = 0 says that a. dividing the error by the explanatory variable results in a zero (on average). b. the sample regression function residuals are unrelated to the explanatory variable. c. the sample mean of the Xs is much larger than the sample mean of the errors. d. the conditional distribution of the error given the explanatory variable has a zero mean. - D Assume that you have collected a sample of observations from over 100 households and their consumption and income patterns. Using these observations, you estimate the following regression Ci= B0+B1Yi+ui,, where C is consumption and Y is disposable income. The estimate of B1 will tell you a.Chang in Income/ Chang in Consumption b. The amount you need to consume to survive c. Chang in Consumption/ Chang in Income d. Chang in Consumption/ Chang in Income - D In which of the following relationships does the intercept have a real-world interpretation? a. the relationship between the change in the unemployment rate and the growth rate of real GDP ("Okun's Law") b. the demand for coffee and its price c. test scores and class-size d. weight and height of individuals - A The OLS residuals, ^ui (mu hat) , are sample counterparts of the population a. regression function slope b. errors c. regression function's predicted values d. regression function intercept - B