Econometrics Midterm & Final Exam Questions and answers

Econometrics Midterm & Final Exam Questions and answers Econometrics -Answer-The science of testing economic theories. Also it works as a set of tools used for forecasting future values of economic variables as well as being the process of fitting mathematical economic models to real world data. Econometrics uses historical data to make numerical, or quantitative, policy recommendations in government and business. Y-bar -Answer-The sampling average. It is an unbiased estimator for miuY, consistent, and is very efficient. More efficient than Y1. A smaller variance than the other one means it is more efficient. Y-bar is the Best Linear Unbiased Estimator (Blue). It is the least squares estimator of miuY. Multiple Regression Analysis -Answer-Used to isolate the effect of changes (in class size) from changes in other factors such as economic background. It provides a mathematical way to quantify how a change in one variable affects another variable, holding other things constant. Price Elasticity of Demand -Answer-The percentage change in the quantity demanded resulting from a percent increase in prices. Forecasting Inflation -Answer-The data we use to forecast inflation are the rates of inflation and unemployment in the United States. Phillips curve -Answer-A currently low value of the unemployment rate is associated with an increase in the rate of inflation over the next year. Causal Relationships (effect) -Answer-An action is said to cause an outcome if the outcome is the direct result or consequence, of that action. A specific action leads to a specific, measurable consequence. It is the effect on an outcome of a given action or treatment as measured in an ideal randomized controlled experiment. Randomized Controlled Experiment -Answer-a clinical trial in which the subjects are randomly distributed into groups which are either subjected to the experimental procedure (as use of a drug) or which serve as controls—called also randomized clinical trial. Control group & treatment group -Answer-Control receives no treatment and treatment receives the treatment. Experimental Data -Answer-Comes from experiments designed to evaluate a treatment or policy or to investigate a causal effect. Observational Data -Answer-Data obtained by observing actual behavior outside an experimental setting. They are collected using surveys, administrative records, etc. Cross sectional Data -Answer-Data on different entities - workers, consumers, firms, governmental units, and so forth - for a single time period. We can learn about relationships among variables by studying differences across people, firms, or other economic entities during a single time period. Example: Class sizes in schools. #1 Observation Number -Answer-An arbitrarily assigned number that organizes the data. Time Series Data -Answer-Are data for a single entity (person, firm, or country) collected at multiple time periods. Example: Data sets on the rates of inflation and unemployment in the United States is an example of a Time Series Data Set. The data set contains observations on two variables (inflation and unemployment) for a single entity (The United States) for 183 time periods. #2 Panel Data (Longitudinal Data) -Answer-Data for multiple entities in which each entity is observed at two or more time periods. Example: Our data on cigarette consumption and prices. Panel data can be used to learn about economic relationships from the experiences of the many different entities in the data set and from the evolution over time of the variables for each entity. Ch.1 Outcomes -Answer-The mutually exclusive potential results of a random process. (comp. crashing once, twice, or never, but only one of those outcomes will actually occur making them mutually exclusive. Ch.2