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(MM: 60 marks)

TAKE-HOME QUIZ

Ques 1 – Using the data given below, calculate the value of OLS estimators. (5.5 marks)

VARIABLE MEAN VALUE


𝑌 1.8726
𝑋 5.9778
𝑋2 66.0848
𝑌2 3.8351
𝑋𝑌 12.1415

Ques 2 – Which of the following PRFs satisfy the linearity assumption. (3.5 marks)
1
(i) 𝑌𝑖 = 𝛽1 + 𝛽2 (𝑋 ) + 𝑢𝑖
𝑖
(ii) 𝑌𝑖 = 𝛽1 + 𝛽2 ln 𝑋𝑖 + 𝑢𝑖
(iii) ln 𝑌𝑖 = 𝛽1 + 𝛽2 𝑋𝑖 + 𝑢𝑖
1
(iv) ln 𝑌𝑖 = 𝛽1 + 𝛽2 (𝑋 ) + 𝑢𝑖
𝑖

(v) 𝑌𝑖 = 𝑒 𝛽1 + 𝛽2 𝑋𝑖 + 𝑢𝑖
1
(vi) 𝑌𝑖 =
1+ 𝑒 𝛽1 + 𝛽2 𝑋𝑖 + 𝑢𝑖
(vii) 𝑌𝑖 = 𝛽1 + 𝛽2 3 𝑋𝑖 + 𝑢𝑖

Ques 3 – State and prove the Gauss-Markov Theorem. Also, clearly state the required Gauss-Markov
assumptions. (6 + 3 marks)

Ques 4 - A company A operates with the following production function: (2 + 3 + 3 marks)

𝒀𝑨𝒕 = 𝟏𝟏𝟎 + 𝟎. 𝟔𝟓 𝑲𝑨𝒕 (𝑹𝟐 = 𝟎. 𝟑𝟕)

such that 𝑌𝑡𝐴 measures total production in thousand Euros in year 𝑡 and 𝐾𝑡𝐴 measures the use of
capital in thousand Euros in year 𝑡.

a- Interpret the coefficients of the estimated production function.


b- A competitor of company A, company B, operates according to a different production function
defined as:
𝒀𝑩𝒕 = 𝟖𝟎 + 𝟎. 𝟓𝟎 𝑲𝒕
𝑩
(𝑹𝟐 = 𝟎. 𝟒𝟖)
Interpret the coefficients of the estimated production function for company B in comparison to
the coefficients for company A.
c- In 2010 (𝑡 = 2010), the use of capital in company A had a value of 320,000 Euros and 280,000
Euros in company B. Both companies are planning to expand their businesses to the Brazilian
market in 2015. Therefore, their capital levels will increase 20% respect to 2010. Find the total
production prediction in 2015 (𝑡 = 2015) for each company using the estimated cost functions.
Explain which company will obtain a more accurate prediction in your opinion.

Ques 5 - We have the following information regarding the average growth rates of employment (e)
and real GDP (g) for 25 OECD countries: (3 + 2 + 2 + 1 marks)

𝑒̅ = 0.83

𝑔̅̅ = 2.82

𝑆𝑆𝑇 = 14.57

𝑆𝑆𝑅 = 6.12

∑25
𝑖=1(𝑒𝑖 − 𝑒̅ )(𝑔̅𝑖 − 𝑔̅̅ ) = 29.76

∑25 2
𝑖=1(𝑔̅𝑖 − 𝑔̅̅ ) = 60.77

a- Find the regression coefficients for a regression model that investigates the behaviour of e
through the behaviour of g.
b- Interpret your regression coefficients.
c- Find and interpret the value of the determination coefficient.
d- Calculate the predicted e when g = 3.15.

Ques 6 - Observe the table below: (4 + 6 + 1 + 4.5 + 1.5 + 3 marks)

X Y
62 8.1
70 9.0
76 9.2
82 10.5
88 10.8
74 9
75 8.1

a- Estimate the relationship between X and Y using OLS; that is, obtain the intercept and slope
estimates in the regression equation.
b- Compute the fitted values and residuals for each observation and verify if residuals
(approximately) sum to zero.
c- What is the predicted value of Y when X=58?
d- Compute SST, SSR and SSE and explain the difference between SSE and SSR.
e- Compute the coefficient of determination and interpret it.
f- Compute the value of the sample correlation coefficient and explain the difference between
the coefficient of determination and the sample correlation coefficient.
Ques 7 - Assume the true PRF is given by: (6 marks)

𝑌 = 𝛽0 + 𝛽1 𝑋 + 𝑢

We obtain a random sample (𝑋𝑖 , 𝑌𝑖 ) of N observations from the population. Show how using this
sample we can obtain the estimates of the population parameters 𝛽0 and 𝛽1 .

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