Midterm Exam 1 - Specimen Paper - v3

Econometrics:
Specimen paper of midterm exam #1
Part A: Solve all of 12 questions (5 marks for each question)
1. Consider two random variables and . Let a and b denote constants.
What is the variance of ?
a. √
b. √
c.
d.
e. None of the others.
2. Consider two discrete random variables and . The probability that has a certain value given
that has a particular value is called:
a. marginal probability.
b. joint probability.
c. conditional probability.
d. cumulative probability
3.
d s
 c

Consider the model Q  f P, P , P , INC where Qd is quantity demanded of a
particular product per month, P is the price of the product, Ps is the price of substitutes,
Pc is the price of complements, and INC is monthly income. This equation represents _____.
a. a linear model
b. an economic model
c. an econometric model
d. an interval forecast
1
4. A data set that has observations on one entity at multiple points in time is classified as _____.
a. time series data

b. cross-section data
c. panel data
d. flow data
5. Of the following steps in conducting empirical economic research, which one should be
performed last?
a. Find appropriate data that can be used for estimation.

b. Build an economic model guided by economic theory.
c. Evaluate and analyze the consequences and implications of the results.
d. Estimate parameters and test hypotheses.
6. A data set containing the number of adults with college degrees in each of the US states in
2009 is _____ data.
a. time series
b. cross-section
c. panel
d. flow
e. None of the others.
7. In an economic model that uses income to predict monthly expenditures on entertainment,

_____ would be the dependent variable.
a. income
b. monthly expenditures on entertainment
c. income elasticity
d. demand for entertainment
8. If the conditional variation of the random errors is not constant (i.e., var  ei | xi    2 ),
then we say that random errors are _____.
a. homoscedastic
b. exogenous
c. heteroskedastic
d. serially correlated
2
)
9. Suppose you have estimated the equation y  33.75  1.45  MALE  where y is annual
income in thousands and MALE is an indicator variable such that it takes the value of 1 for
males and the value of 0 for females. According to this model, the average income for
females is _____.
a. $33,750.0
b. $35,200.0
c. $33.75
d. $35.20
10. Suppose you have estimated a simple linear demand equation for single-game tickets for a
)
minor league baseball team. The estimated equation is q  4.58  0.51 p where q is the
number of tickets sold measured in thousands and p is the dollar price of a ticket.
Further assume that the point of the means is  p , q   10.25,3.19  . Given this information
and everything else held constant, the estimate of the price elasticity of demand for tickets
is _____.
a. -0.16
b. 1.64
c. 0.16
d. -1.64
11. In testing H0:  2 = c at the 5% significance level, you find a p-value of .38.
What should you conclude?
a. H0 is true, 2 = c.
b. H0 should be rejected and is unlikely to be true since the p-value < .50.
c. It is impossible to know for sure, but there is a .38 probability that 2 = c.
d. There is not sufficient evidence to reject H0.
12. In which case would testing the null hypothesis involve a two-tailed statistical test?
a. H1: Incentive pay for teachers does affect student achievement.

b. H1: Higher sales tax rates does not reduce state tax revenues.
c. H1: Extending the duration of unemployment benefits does not increase the length
of joblessness.
d. H1: Smoking does not reduce life expectancy.
----------------------------
3
Part B: Solve all of questions 13—15.
13. (15 marks) Briefly summarize the six assumptions of the Simple Linear Regression Model. And
discuss the Gauss—Markov theorem, especially which assumptions are needed and what
implication/limitations of this theorem are.
14. (15 marks) Briefly discuss the OLS interval estimator of in the simple linear regression model,
especially how it is related to the t-distribution and how the t-distribution differs from the standard
normal distribution.
15. (10 marks) Suppose that you consider the linear regression model of which regression equation is
written as:
where refers to the explanatory variable, and the error term. You make the usual six assumptions
considered in the (either simple or multiple) linear regression model, and estimate, by the OLS method,
the parameters
Suppose that the residuals from the OLS regression exhibit the following pattern:
Based on the graph above, discuss what assumption(s) may not hold true in the reality (i.e., data
generating process), differently from the assumptions considered in the linear regression model. How
can you transform the regression equation and address the issue mentioned above so that after such a
transformation, the assumptions considered in the linear regression model are likely to hold true. In
writing your answer, you need to discuss the reasons why you think so.

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Econometrics:

Specimen paper of midterm exam #1

Part A: Solve all of 12 questions (5 marks for each question)

1. Consider two random variables and . Let a and b denote constants.

What is the variance of ?

e. None of the others.

a. time series data

a. Find appropriate data that can be used for estimation.

7. In an economic model that uses income to predict monthly expenditures on entertainment,

a. H1: Incentive pay for teachers does affect student achievement.

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