Memorial University of Newfoundland

Economics
ECON 4550
Roberto Martinez-Espineira
Assignment 4

Name___________________________________

Computer problem:
Use the GRETL dataset "beer" and regress the quantity of beer on its price.
Report the results in table and equation format [3]
2. Comment on the results obtained [5]
3. Predict the residuals and plot them against the price of beer [3]
4. Fomally test and comment on the significance of the slope parameter [5]
1.

5.
6.
7.
8.
9.

Using still the dataset "beer" regress the quantity of beer on "other liquor" price.
Report the results in table and equation format [3]
Comment on the results obtained [5]
Predict the residuals and plot them against the price of other liquor [3]
Fomally test and comment on the significance of the slope parameter [5]

10.

Plot the price of beer against the price of other liqours and provide a measure of the correlation
between the two variables [3]

11.

Explain whether the signs you saw are the expected ones and why or why not. Explain
whether you would be able to think about a better way to find out how the price of beer and
other liquors affects the quantity demanded of beer [5]

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

[3 each
An estimator is

1)
_______

A)
a random variable.
B)
an estimate.
C)
a formula that gives an efficient guess of the true population value.
D)
a nonrandom number.

An estimate is

2)
_______

A)
another word for estimator.
B)
a nonrandom number.
C)
unbiased if its expected value equals the population value.
D)
efficient if it has the smallest variance possible.

The critical value of a two-sided t-test computed from a large sample

3)
_______

A)
is 1.96 if the significance level of the test is 5%.
B)
is 1.64 if the significance level of the test is 5%.
C)
cannot be calculated unless you know the degrees of freedom.
D)
is the same as the p-value.

The correlation coefficient

4)

_______

A)
is close to one if X causes Y.
B)
lies between zero and one.
C)
takes on a high value if you have a strong nonlinear relationship.
D)
is a measure of linear association.

Degrees of freedom

5)
_______

A)

ensure that

=
.
B)
are (n-2) when replacing the population mean by the sample mean.
C)
in the context of the sample variance formula means that estimating the mean uses up some of the information in the
datA
D)
is something that certain undergraduate majors at your university/college other than economics seem to have an
amount of.
6
When the estimated slope coefficient in the simple regression model, 1, is zero, then
6)
_______
0 < R2 < 1.

A)

B)
R2 = 0.
R2 =

C)

.
D)

R2 > (SSR/TSS).

Which of the following statements is correct?

7)
_______

A)

ESS > TSS

B)
ESS = SSR + TSS
C)
TSS = ESS + SSR
D)
R2 = 1 - (ESS/TSS)

Binary variables

8)
_______

A)
can take on more than two values.
B)
can take on only two values.
C)
are generally used to control for outliers in your sample.
D)
exclude certain individuals from your sample.

The following are all least squares assumptions with the exception of:
9)
_______
A) The conditional distribution of ui given Xi has a mean of zero.

B)
(Xi, Yi), i = 1,..., n are independently and identically distributed draws from their joint distribution.
C)
The explanatory variable in regression model is normally distributed.
D)
Large outliers are unlikely.

The slope estimator, 1, has a smaller standard error, other things equal, if
10)
______

A)
there is more variation in the explanatory variable, X.
B)
there is a large variance of the error term, u.
C)
the intercept, 0, is small.
D)
the sample size is smaller.

The regression R2 is a measure of

11)
______

A)
whether or not X causes Y.
B)
the square of the determinant of R.
C)
whether or not ESS > TSS.
D)
the goodness of fit of your regression line.

To obtain the slope estimator using the least squares principle, you divide the
12)
______

A)
sample covariance of X and Y by the sample variance of Y.
B)
sample variance of X by the sample variance of Y.
C)
sample variance of X by the sample covariance of X and Y.
D)
sample covariance of X and Y by the sample variance of X.

13) Which of the following

13) Which of the following is not an assumption of the multiple regression model?

A)
model which of the following does NOT lead to larger variances of the least squares estimators b 2 and
The
var(b2)?
values
A) larger error variances, s2
ofB)each
larger correlation between x2 and x3
x
C) smaller values of (xi2 - xx2)2
not
D) larger correlation between x2 and y
rando 15) How can you estimate non-linear function forms using least squares?
m and
A) estimate the linear approximation over small ranges at a time
are not
B) transform, such as squaring or cubing, some explanatory variables.
exact
C) use a very large sample so you do not have to assume the error terms are normally distributed
linear
D) It cannot be done. You need to use another estimation technique.
functio
ns of
16) When performing an F-test, if the null hypothesis is H0: b2 = b3 = 0 what is the alternative
the
hypothesis?
other
A) b2 0 and b30
explan
B) b2 0 or b30
atory
C) (b2 0 and b3=0) or (b2 =0 and b30)
variabl
D) (b2 <0 and b3>0) or (b2 >0 and b3<0)
es.
B)
var(y
=
var(e
=

C)
The
least
squa
res
esti
mato
rs
are
BLU
E.
D)
cov(y
y
cov(e
e
(ij)
14
)
In
the
mu
lti
ple
reg
res
sio
n

17
)
Ho
w
do
es
om
itti

ng a relevant variable from a regression model affect the estimated coefficient of other variables in the
model?
A) they are biased downward and have smaller standard errors
B) they are biased upward and have larger standard errors
C) they are biased and the bias can be negative or positive
D) they are unbiased but have larger standard errors
18) If you reject the null hypothesis when performing a RESET test, what should you conclude?
A) at least one of the original coefficients is not equal to zero
B) the original model is incorrectly specified and can be improved upon
C) relevant variable are omitted and the coefficient estimates of included variables are biased
D) an incorrect functional form was used
19) The following Mincer equation has been used to estimate wages:
ln (Y) = ln (Yo) + b2EDU + b3 EXPER + b4 EXPER2 + e
where Y is income, Y0 is income of someone with no education or experience, EDU is years of education
and EXPER is experience in the field. If you suspect males earn higher wages than females and that the
wage difference increases with education how would you adjust the econometric model to estimate wages?
A) include a binary variable for gender, MALE
B) include an interaction term equal to MALE* EDU
C) include an indicator variable for MALE and one for FEMALE
D) include a binary variable for MALE and an interaction term equal to MALE * EDU
20) The Chow test is a specific application of a(n)
A) z-test
B) c2 test
C) F-test
D) t-test