ECONOMETRICS FINAL EXAM
QUESTIONS AND ANSWERS
The quarterly increase in an employee's salary depends on the rating of his work by his
employer and several other factors as shown in the model below:
Increase in salary= 0 +0Rating + other factors. The variable 'Rating' is a(n) _____. -
Answer- ordinal variable
In a regression model, which of the following will be described using a binary variable? -
Answer- Whether it rained on a particular day or it did not
Which of the following Gauss-Markov assumptions is violated by the linear probability
model? - Answer- The assumption of constant variance of the error term.
The order condition for identification of an equation requires that there should be _____.
- Answer- at least as many excluded exogenous explanatory variables as there are
included endogenous explanatory variables
The two stage least squares estimator is less efficient than the ordinary least squares
estimator when the explanatory variables are exogenous. - Answer- True
Which of the following assumptions is known as exclusion restrictions? - Answer- The
assumption that an exogenous explanatory variable is excluded from a regression
model and is uncorrelated with the error term.
Which of the following assumptions is required for two-stage least squares estimation
method? - Answer- The error term has zero mean.
A test for heteroskedasticty can be significant if _____. - Answer- the functional form of
the regression model is misspecified
The square root of the quantity Var(Bj(hat))= sum(r^2*u^2)/SSR^2 is called the _____
for Bj(hat) . - Answer- heteroskedasticity-robust standard error
What will you conclude about a regression model if the Breusch-Pagan test results in a
small p-value? - Answer- The model contains heteroskedasticty.
, Which of the following is true of heteroskedasticity? - Answer- The Ordinary Least
Square estimators are not the best linear unbiased estimators if heteroskedasticity is
present.
Which of the following is true of the OLS t statistics? - Answer- The heteroskedasticity-
robust t statistics are justified only if the sample size is large.
Which of the following tests helps in the detection of heteroskedasticity? - Answer- The
Breusch-Pagan test
Consider the following equation for household consumption expenditure:
Consmptn= 0 + 1 Inc + 2Consmptn-1+ u
where 'Consmptn' measures the monthly consumption expenditure of a household, 'Inc'
measures household income and 'Consmptn-1' is the consumption expenditure in the
previous month. Consmptn-1 is a _____ variable. - Answer- lagged dependent
The classical errors-in-variables (CEV) assumption is that _____. - Answer- the
measurement error is uncorrelated with the unobserved explanatory variable
The method of data collection in which the population is divided into nonoverlapping,
exhaustive groups is called _____. - Answer- stratified sampling
Which of the following is a drawback of including proxy variables in a regression model?
- Answer- It exacerbates multicollinearity.
Which of the following is true of measurement error? - Answer- If measurement error in
an independent variable is uncorrelated with the variable, the ordinary least squares
estimators are unbiased.
Which of the following is true of Regression Specification Error Test (RESET)? -
Answer- It tests if the functional form of a regression model is misspecified.
Which of the following types of sampling always causes bias or inconsistency in the
ordinary least squares estimators? - Answer- Endogenous sampling
Consider the following simple regression model y = β0 + β1x1 + u. Suppose Corr(x,u) >
0, Corr(z,x) > 0, and Corr(z,u) < 0. Then, the IV estimator has a(n) _____. - Answer-
downward bias
Consider the following simple regression model: y = 0 + 1 x 1 + u. In order to obtain
consistent estimators of 0 and 1, when x and u are correlated, a new variable z is
introduced into the model which satisfies the following two conditions: Cov(z,x) 0 and
Cov (z,u) = 0. The variable z is called a(n) _____ variable. - Answer- instrumental
QUESTIONS AND ANSWERS
The quarterly increase in an employee's salary depends on the rating of his work by his
employer and several other factors as shown in the model below:
Increase in salary= 0 +0Rating + other factors. The variable 'Rating' is a(n) _____. -
Answer- ordinal variable
In a regression model, which of the following will be described using a binary variable? -
Answer- Whether it rained on a particular day or it did not
Which of the following Gauss-Markov assumptions is violated by the linear probability
model? - Answer- The assumption of constant variance of the error term.
The order condition for identification of an equation requires that there should be _____.
- Answer- at least as many excluded exogenous explanatory variables as there are
included endogenous explanatory variables
The two stage least squares estimator is less efficient than the ordinary least squares
estimator when the explanatory variables are exogenous. - Answer- True
Which of the following assumptions is known as exclusion restrictions? - Answer- The
assumption that an exogenous explanatory variable is excluded from a regression
model and is uncorrelated with the error term.
Which of the following assumptions is required for two-stage least squares estimation
method? - Answer- The error term has zero mean.
A test for heteroskedasticty can be significant if _____. - Answer- the functional form of
the regression model is misspecified
The square root of the quantity Var(Bj(hat))= sum(r^2*u^2)/SSR^2 is called the _____
for Bj(hat) . - Answer- heteroskedasticity-robust standard error
What will you conclude about a regression model if the Breusch-Pagan test results in a
small p-value? - Answer- The model contains heteroskedasticty.
, Which of the following is true of heteroskedasticity? - Answer- The Ordinary Least
Square estimators are not the best linear unbiased estimators if heteroskedasticity is
present.
Which of the following is true of the OLS t statistics? - Answer- The heteroskedasticity-
robust t statistics are justified only if the sample size is large.
Which of the following tests helps in the detection of heteroskedasticity? - Answer- The
Breusch-Pagan test
Consider the following equation for household consumption expenditure:
Consmptn= 0 + 1 Inc + 2Consmptn-1+ u
where 'Consmptn' measures the monthly consumption expenditure of a household, 'Inc'
measures household income and 'Consmptn-1' is the consumption expenditure in the
previous month. Consmptn-1 is a _____ variable. - Answer- lagged dependent
The classical errors-in-variables (CEV) assumption is that _____. - Answer- the
measurement error is uncorrelated with the unobserved explanatory variable
The method of data collection in which the population is divided into nonoverlapping,
exhaustive groups is called _____. - Answer- stratified sampling
Which of the following is a drawback of including proxy variables in a regression model?
- Answer- It exacerbates multicollinearity.
Which of the following is true of measurement error? - Answer- If measurement error in
an independent variable is uncorrelated with the variable, the ordinary least squares
estimators are unbiased.
Which of the following is true of Regression Specification Error Test (RESET)? -
Answer- It tests if the functional form of a regression model is misspecified.
Which of the following types of sampling always causes bias or inconsistency in the
ordinary least squares estimators? - Answer- Endogenous sampling
Consider the following simple regression model y = β0 + β1x1 + u. Suppose Corr(x,u) >
0, Corr(z,x) > 0, and Corr(z,u) < 0. Then, the IV estimator has a(n) _____. - Answer-
downward bias
Consider the following simple regression model: y = 0 + 1 x 1 + u. In order to obtain
consistent estimators of 0 and 1, when x and u are correlated, a new variable z is
introduced into the model which satisfies the following two conditions: Cov(z,x) 0 and
Cov (z,u) = 0. The variable z is called a(n) _____ variable. - Answer- instrumental
