Introductory Econometrics

MIDTERM EXAMNATION

INSTRUCTIONS: - This is the open-book exam, all materials can be used in the room except laptop
- Time allowed: 60 minutes.
- Mark for each question is given next to the question’s number.

Given the regression output below in which GNP is Gross National Product, CPI is
Consumer Price Index (%), I is investment (bil) and R is Interest Rate (%).

Dependent Variable: GNP

Included observations: 15
Variable Coefficient Std. Error t-Statistic Prob.
C -29.6074 1.04051 -29.35656 0.0000
CPI 14.18311 0.382173 37.11174 0.0000
I 1.325414 0.123177 10.76025 0.0000
R 6.541530 3.058294 2.138947 0.0557
R-squared 0.984776 Mean dependent var 1748.647
Adjusted R-squared 0.983250 S.D. dependent var 738.1458
S.E. of regression 15.65737 Akaike info criterion 8.562939
Sum squared resid 2696.686 Schwarz criterion 8.751752
Log likelihood -60.22204 F-statistic
Durbin-Watson stat 1.764303 Prob(F-statistic) 0.000000

Answer the following questions: using alpha =0.05

R-squared = 0.984776
RSS = 2696.686
n = 15
k=4

1. Write down Sample Regression Function and explain the meaning of each estimated coefficients.
GNP = -29.6074 + 14.18311*CPI + 1.325414* I + 6.541530*R
Linear-linear: Y= β1+ β2*X+u: 1 unit change of X making Y changes β2 unit

2. Signs of estimated coefficients are of your expectation? Explain.

3. Test for significance of each variable.

4. Estimate GNP if CPI is 7%, Investment is 5.6 bil and interest rate is 4%
 5. Test for the significance of all independent variables simultaneously.

Ho: all beta =0

H1: Ho false
F test

6. How much the independent variables can explain for the variation of GNP.

7. When investment increases 1bil, in which range can GNP increase? (other variable unchanged)

8. Test for hypothesis that GNP will increase at least 15 bils if CPI increase 1%.

9. Test for the hypothesis that CPI and I have the same effects on GNP given that the covariance
between two corresponding estimated coefficients is .04228
10. Test for dropping Investment and Interest Rate if the model of GNP on CPI (with intercept) gives
the R2 of 0.9832

GOOD LUCK!