AIU Exam – Econometrics: Linear Regression

School: Business & Economics

Major: Economics

Course title: Econometrics: Linear Regression

Credits for course: 3 credits
Description of course:
Based on the material in this primer you should be able to:
1. Explain the difference between an estimator and an estimate, and why the least
squares estimators are random variables, and why least squares estimates are not.
2. Discuss the interpretation of the slope and intercept parameters of the simple
regression model, and sketch the graph of an estimated equation.
3. Explain the theoretical decomposition of an observable variable y into its systematic
and random components, and show this decomposition graphically.
4. Discuss and explain each of the assumptions of the simple linear regression model.
5. Explain how the least squares principle is used to fit a line through a scatter plot of
data. Be able to define the least squares residual and the least squares fitted value
of the dependent variable and show them on a graph.
6. Define the elasticity of y with respect to x and explain its computation in the simple
linear regression model when y and x are not transformed in any way, and when y
and/or x have been transformed to model a nonlinear relationship.
7. Explain the meaning of the statement ‘‘If regression model assumptions SR1–SR5
hold, then the least squares estimator b2 is unbiased.’’ In particular, what exactly
does ‘‘unbiased’’ mean? Why is b2 biased if an important variable has been omitted
from the model?
8. Explain the meaning of the phrase ‘‘sampling variability.’’
9. Explain how the factors σ2, ∑(xi- x)̅ 2,and N affect the precision with which we can
estimate the unknown parameter ꞵ2 .
10. State and explain the Gauss–Markov theorem.
11. Use the least squares estimator to estimate nonlinear relationships and interpret the
results.

Book & chapter: Principles of Econometrics, Chapter 2

Link to book:

http://students.aiu.edu/submissions/profiles/resources/onlineBook/R5W9A5_principles-
of-econometrics-4th-edition.pdf
Bibliography of book:
Hill, R. Carter, et al. Principles of econometrics. 4th Edition. Hoboken, NJ: Wiley, 2011.
Link to Supplemental Book to use Excel to answer questions:
http://students.aiu.edu/submissions/profiles/resources/onlineBook/
H7Y2Q8_using_excel_for_principles_of_econometrics3e.pdf
Format of the assignment: Assignment must have an AIU cover page, introduction to
the topics of the chapter, answers to the questions below, conclusion about the exam
and the bibliography of book at end of assignment.
Instructions for Adding Course & Submitting Exam: Go to the top of your student
platform. On the left you will see a link to add a course called “Add Courses into Curriculum”.
Click there. Then you will see a button to add a new course. It will then ask you to give the
specific name of the course, which is given above on this exam.
Then you submit the assignment through another link at the top of the platform called “Submit
an assignment”. You choose the course name from the drop-down list. Then you choose to
send the assignment “offline”. Then you upload the file(s) for the course.
Please include questions with your answers, so that we can see the question being
answered.

Questions… Page 75
2.1 Consider the following five observations. You are to do all the parts of this exercise
using only a calculator.