October 4, 2011 EF 3450 Principles of Econometrics Review problem set [ ] 1. Let Y be the dependent variable of a regression model.

Which of the following is a linear estimator in Y ? A) (1 / 4)Y1 Y2 + (1 / 2)Y3

1 n 1 ( C ) )Yi2 n 1 ( D) )Yi n

B) ( ) ln( Yi )

E) None of the above. [ ] 2. Suppose you are attempting to build a model that explains aggregate investment behavior as a function of the level of interest rates. How would you collect your data? (A) To collect data over a period in which the interest rate is increasing (B) To collect data over a period in which interest rate is relatively constant (C) To collect data over a period in which the interest rate is at its minimum level (D ) To collect data during a period of fluctuating interest rates (E) None of the above.
1 ] 3. For the regression with only a slope term yi = x + ui with 2 ui ~ (0, ), the least squares normal equation(s) is/are

(A) (B) (C)

i =1 n i =1 n

xi u i = 0

ui = 0 ui = 0 ,
n

i =1

i =1

xi u i = 0
n

2 (D) 1 = xi yi / x

(E) None of the above. [ ] 4. The zero conditional mean assumption, i.e., E (u | x) = 0 is needed to ensure that (A) we have at least two distinct points to draw a straight line. (B) every observation is equally reliable. (C) we uncover the ceteris paribus effect of x on y (D) on the average we are on the true regression line. (E) None of the above. ] 5. Which of the following statements on the properties of expected values is false? A) The expected value of a constant times a random variable is the constant times the expected value of the random variable.
1

i =1

i =1

B) The expected value of a sum E ( Yi ) is the sum of the expected values,

i =1

C) If X and Y are uncorrelated, then E ( XY ) = E ( X ) E (Y ). D) If X and Y are independent, then E (Y | X ) = E (Y ). E) None of the above. [ ] 6. Which of the following statement gives the interpretation of regression model: y i = 0 + 1 log xi + u i ? (A) y = (1/100)%x (B) %y = (1001)x (C) y = 1 x (D) %y = 1 %x (E) None of the above.
1

i =1

E (Yi ) .

in the

[ ] 7. In order to obtain unbiased least squares estimators of 0 and , which of 1 the following assumptions are needed? (A) E (u ) = 0 and E (u | x) = 0 (B) E (u ) = 0 and Var (u ) =2 (C) u N(0, 2 ) (D) All of the above (E) None of the above [ ] 8. Which of the following statements is true? (A) The method of least squares minimizes the residuals. (B) The method of moments estimators of and are identical to the least 0 1 squares estimators if x is independent of the error. (C) A parameter is the numerical value of an estimator when it is actually computed using data from a specific sample. (D) The fitted regression line passes through the point of means ( y , x ) . (E) All of the above

] 9. For the regression with only an intercept term yi = 1 + ui with ui~ i.i.d . (0, 2), the least squares regression line is (A) Y = Y X (B) Y = X + u =u (C) Y (D) Y = Y (E) None of the above. [ ] 10. Suppose that the random variables X and Y are independent and you know their distributions. Independence means (A) knowing the value of X tells you something about the value of Y (B) conditional and marginal distributions of Y are identical (C) the values of X and Y are randomly selected (D) the distributions of X and Y have a normal shape [

(E) None of the above.

[__] 11. Suppose the correlation of teachers salaries and the consumption of liquor over a period of years was found to be 0.9. Which of the following statement is correct? (A) It proves that the two variables move in the same direction. (B) It proves that teachers drink. (C) It proves that liquor sales increase teachers salaries. (D ) It proves that the two variables moved together due to a third factor. (E) None of the above. [ ] 12. Which of the following is a random variable? (A) the gender of the next person you meet (B) the number of times a computer crashes (C) the time it takes to commute to school (D) All of the above (E) None of the above.

Key: D, D, A, C, C, A, A, D, D, B, E, D