Name:…………………………………………. ID No:…………………………..

BITS-Pilani Dubai Campus

ECON F241 ECONOMETRIC METHODS
Semester II, 2020 Comprehensive Examination (Closed Book)
Section 1: Multiple Choice Questions (1X24) Max Marks: 60
Note: Encircle the most appropriate option and return this paper with answer book!
All the notations have usual meanings unless otherwise defined!
1 The property that there is zero correlation between dependent variable Y and
residual series (u) obtained from using OLS, implies that the
a) u generated is purely random b) u does not reflect the systematic effect of any
omitted variable c) u denotes random changes in Y d) All, a, b and C
2 Suppose, you estimated a regression model using OLS technique: Q= 2.25-0.7P +
0.5Y; where P is the price and Q is the spending on a certain Commodity and Y is
income. What does the coefficient w.r.t. Y indicate
a) If income increases by 1 dollar, the spending on the commodity will increase by 0.5
dollars, on average
b) If income increases by 1 dollar, the spending on the commodity will decrease by 0.5
dollars, on average
c) If income increases by 1 dollar, the spending on the commodity will increase by 0.7
dollars, on average
3 Suppose, you estimated a hypothetical sample regression function using OLS method
and you observed that  uˆi 2 = (Yi – Y^i)2 ≠ 0. What does it imply
a) βˆ1 , βˆ2 are wrong estimates for β1 , β2
b) βˆ1 , βˆ2 are not close approximation for β1 , β2
c) βˆ1 , βˆ2 are not perfect/exact approximation for β1 , β2
4 Assume the following regression model: Eˆi = βˆ1 - βˆ2 Bi + βˆ3 Ti where E measures
efficiency of worker, B is the bonus he receives (kind/cash) and T denotes the years
of experience he has. Then the estimate βˆ1 indicates
a) The improvement in efficiency for a unit change in bonus
b) The improvement in efficiency for a unit change in experience
 c) The efficiency of workers with zero experience and bonus
d) The improvement in efficiency for a unit change in experience and bonus
5 The mean value of predicted/estimated value of Y (obtained from OLS method) is
always going to be equal to mean value of actual Y..
a) True b) False
6 If we use all the relevant variables in a regression model measuring an economic
relationship, then the error term corresponding to each value of independent variable
is bound to be equal to zero.
a) True b) False
7 The sampling distribution of an estimator is generated mainly due to the sampling
fluctuations.
a) True b) False
8 Suppose, you collected the output levels of various car manufacturing plants
corresponding to different levels of input used over time. This data set which you got
is
a) Cross sectional data c) Time series data c) Panel data d) Experimental data

We know that both very low rates of inflation (P) and very high rates of inflation (P)
are bad for economy; as in both situations it generates higher welfare costs (C).
9
However, when inflation is stabilized around certain rate (>0), it results in minimum
welfare costs. Given this information, which of the following specifications you think
is more appropriate to capture the relationship between C and P
a) C = β1 + B2 P+ u b) C = β1 - β2 P + β3 P 2 i + u
c) b) C = β1 + β2 P + β3 P 2 - β3 P 3 u d) None
10 In regression analysis, the dependent variable is always assumed to be a
random/stochastic variable
a) Ture (b) False
11 A classical linear regression model assumes that the error terms Ui and Uj are
correlated
a) Ture (b) False
12 In long-run, in order to ensure that the probability committing an error that is
‘rejecting the null hypothesis which is actually true’ is low, we choose
a) lower 1   b) higher 1   c) 1   does not matter d) lower t-value
13
 
The confidence interval given by Pr  2*  t se( ˆ2 )  ˆ2   2*  t se( ˆ2 )  1  
2 2

determines the critical values for

a) Accepting Ho, if βˆ2 lies within this range
b) Rejecting Ho, if βˆ2 lies outside this range
c) Rejecting Ho, if βˆ2 lies within this range
d) Accepting Ho, if βˆ2 lies outside this range e) both a and b f) both c and d
14
Suppose the confidence interval  
Pr  2*  t se( ˆ2 )  ˆ2   2*  t se( ˆ2 )  1  
2 2

under Ho: β2 =0.30 gives 0.21 and 0.38 as the lower and upper critical values
respectively. Then which of the following inference can be drawn
a) βˆ2 =0.37 should be considered statistically same as β2 =0.30
b) βˆ2 =0.24 should be considered statistically same as β2 =0.30
c) βˆ2 =0.11 should not be considered statistically same as β2 =0.30
d) βˆ2 =0.41 should not be considered statistically same as β2 =0.30
e) All a, b c, d

15 Suppose you estimated a regression model Wˆi = βˆ1 - βˆ2 Ci + βˆ3 Ii . Assume the exact
level of significance that is p-value associated with coefficient βˆ2 is 0.009. Setting
conventional level of significance, which of the following inference will be more
appropriate
a) Reject the null- hypothesis b) Accept the null- hypothesis c) Can’t say
anything
16 The assumption that Uiˆ follows a normal distribution implies that ˆ2 N (  2 , ˆ 2ˆ )
2

and Y N (1  2 X , )
2

a) Ture (b) False

17 For a given estimate of ˆ2 , the higher se( ˆ2 ) implies that the sample evidence is

a) more in favor of H1   2  0 b) more in favor of H0 H 0   2  0

c) less in favor of H0 H 0   2  0 d) se( ˆ2 ) does no matter for this inference

 18 The magnitude of the estimate of coefficient of determination that is R2 can Not be
used to evaluate the relevance of different independent variables
a) Ture (b) False
19 One implications of normality assumption about Ui is that an OLS estimator is
consistent. This consistency of an estimator implies that Larger the sample size (n),
better is the statistical inference
a) Ture (b) False
20 The asymmetry of the R2 estimate, obtained from the regression equation
Yi  ˆ1  ˆ2 X i  uˆi and X i  ˆ1  ˆ2Yi  eˆi , implies that the R2 from regression Y on
X will be same as X on Y
a) Ture (b) False

The T-statistic being equal to 2 rule implies that if the estimated value of t-stat is
greater or equal to 2; reject the null hypothesis
21
a) Ture (b) False
22 A white noise process is a time series process with zero mean, constant variance and
zero auto covariance
a) Ture (b) False
23 In order to evaluate whether a regression model has been appropriately estimated, we
need to ensure that the disturbance term Ui follows
a) non-stationary process b) white noise process c) Random walk process
24 Which of the following is not a feature of a stationary time series process
a) constant mean b) constant variance c) time variant auto-covariance

Section 2: Descriptive Question (6X6)

1. What are the various numerical properties of OLS estimators. Also, explain the BLUE
properties of of these estimators under normality assumption?
2. Define hypothesis. Illustrate with an appropriate example the formulation of null and
alternative hypothesis. Also, using the same example, state and discuss the different steps
involved in classical econometric modeling?
3. Explain various distinguishing features of a time series process.
4. State and explain (the properties ) various types of time series processes.
5. Suppose that you are interested in examining the factors that determine demand (Y) of a
particular commodity overtime. Suppose you estimated a regression model:
Yt  0  1Pt   2 Rt  3 M t   4 At  ut using OLS method; where, P is its price, R is price of
other related commodity, M is income of consumers and A measures advertising cost. The
results are summarized in the table given below.
Coefficient s.e. t-value p-value r-square DW-Stat
0 0.11 0.01 11.0 0.00 0.85 2.03

1 -0.51 0.04 12.7 0.01

2 0.02 0.09 0.22 0.90

3 0.13 0.04 3.25 0.03

4 0.61 0.64 0.95 0.84

Interpret these results:

(i) Based on the given information, evaluate each of the following null-hypothesis:
0  0; 1  0;  2  0; 3  0;  4  0 .
(ii) What does these results indicate about the relationship between variables Y and P, R, M, A.
(iii) Which factor (Price, Income, Price of related commodity, and Advertising outlay) is more
important in determining the demand for this commodity?
(iv) What does r-square indicate?
6. Explain the assumption of Homoscedasticity and Autocorrelation underlying Ordinary Least
Square (OLS) method. What are its implications?