Econometrics I & II sample exam for preparation of national exit exam

PART I: Choose The Best Answer From The Given Alternatives.

1. Which of the following is NOT a characteristic of an economic model?

A. Simplification B. Realism C. Assumptions D. Variables
Answer b :Realism
2. Which of the following is NOT a type of econometric model?
A. Time series models C. Simulation models
B. Cross-sectional models D. Panel data models
Answer c : Simulation models
3. Which of the following statements is true about economic models?
A. They are always accurate representations of reality.
B. They are always simple and easy to understand.
C. They are used to study the behavior of economic agents.
D. They are never based on assumptions
Answer b : They are always simple and easy to understand.
4. What is the main purpose of econometrics models?
A. To measure the impact of economic policies on the economy.
B. To describe the behavior of economic agents.
C. To predict future economic outcomes.
D. To study the historical trends in the economy
Answer c : To predict future economic outcomes.
5. Which of the following defines the correlation coefficient (r) in simple linear regression?
A. The slope of the regression line
B. The intercept of the regression line
C. A measure of the strength of the linear relationship between two variables
D. A measure of the distance between two points in the scatter plot
Answer c :A measure of the strength of the linear relationship between two variables
6. Which of the following is the correct interpretation of the slope coefficient in simple linear
regression?

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 A. It represents the average change in the independent variable associated with a one-unit
increase in the dependent variable.
B. It represents the average change in the dependent variable associated with a one-unit
increase in the independent variable.
C. It represents the intercept of the regression line.
D. It represents the standard deviation of the residuals.
Answer b : It represents the average change in the dependent variable associated with a one-
unit increase in the independent variable.
7. What is the difference between simple linear regression and multiple linear regression?
A. Simple linear regression involves only one independent variable, while multiple linear
regression involves more than one independent variable.
B. Simple linear regression involves a nonlinear relationship, while multiple linear
regression involves a linear relationship.
C. Simple linear regression involves a quadratic regression line, while multiple linear
regression involves a linear regression line.
D. Simple linear regression involves a dependent variable, while multiple linear regression
involves more than one dependent variable.
Answer a: Simple linear regression involves only one independent variable, while
multiple linear regression involves more than one independent variable.
8. Which assumption of the classical linear regression model is violated when the errors have a
non-constant variance? A) Linearity B) Independence of errors C) Homoscedasticity D)
Normality of errors
Answer c: Homoscedasticity
9. What is the first assumption of the classical linear regression model?
A. Linearity B) Independence of errors C) Homoscedasticity D) Normality of errors
Answer a: Linearity
10. What is the impact of violating the assumption of homoscedasticity in the classical linear
regression model?
A. The estimates of the slope coefficients are biased.
B. The estimates of the intercept are biased.
C. The standard errors of the slope coefficients are incorrect, leading to incorrect hypothesis
tests and confidence intervals.

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 D. The residuals are not normally distributed
Answer c: The standard errors of the slope coefficients are incorrect, leading to incorrect
hypothesis tests and confidence intervals.
11. Which assumption of the classical linear regression model is violated when the errors are
correlated? A) Linearity B) Independence of errors C) Homoscedasticity D) Normality of
errors
Answer c: Homoscedasticity
12. What is the purpose of categorizing qualitative data?
A. To make it easier to collect
B. To make it easier to analyze
C. To make it more objective
Answer b: To make it easier to analyze
D. To make it more quantitative Building a new shopping mall in an urban area
13. What are dummy regressors used for?
A. To create more complex models C. To handle categorical data in regression analysis
B. To improve model accuracy D. To reduce the number of predictor variables
Answer c: To handle categorical data in regression analysis
14. What is the purpose of creating dummy variables?
A. To convert continuous variables to categorical variables
B. To standardize variable values
C. To reduce the impact of outliers
D. To increase the number of predictor variables

Answer A:To convert continuous variables to categorical variables

15. What is a limited dependent variable model?

A. A model that includes only one independent variable
B. A model that is suitable for binary outcomes
C. A model that includes only continuous variables
D. A model that is suitable for linear outcomes

Answer b: A model that is suitable for binary outcomes

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16. In the following regression equation, y is a binary variable: y = β0+β1x1+… βk xk+ u

In this case, the estimated slope coefficient, measures _____.

A. The predicted change in the value of y when x1 increases by one unit, everything else is
remaining constant.
B. The predicted change in the value of y when x1 decreases by one unit, everything else is
remaining constant.
C. The predicted change in the probability of success when x1 decreases by one unit,
everything else is remaining constant.
D. The predicted change in the probability of success when x1 increases by one unit,
everything else is remaining constant.
Answer d:The predicted change in the probability of success when x1 increases by one
unit, everything else is remaining constant.outcomes
17. What is the purpose of a probit model?
A. To estimate the probability of a binary outcome
B. To estimate the expected value of a continuous outcome
C. To estimate the standard deviation of a continuous outcome
D. To estimate the relationship between two continuous variables
Answer a: To estimate the probability of a binary outcome
18. What is a logit model?
A. A model that uses logarithmic transformations to estimate the relationship between
variables
B. A model that includes only binary variables
C. A model that estimates the odds of a binary outcome
D. A model that uses logistic regression to estimate the relationship between variable

Answer D:A model that uses logistic regression to estimate the relationship between variable

19. What is the interpretation of the probit coefficient?

A. It represents the change in the log-odds of the outcome for a unit change in the predictor
variable

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 B. It represents the change in the probability of the outcome for a unit change in the
predictor variable
C. It represents the change in the average value of the outcome for a unit change in the
predictor variable
D. It represents the change in the standard deviation of the outcome for a unit change in the
predictor variable
Answer b: It represents the change in the average value of the outcome for a unit change
in the predictor variable
20. What is the Linear Probability Model?
A. A model that estimates the probability of a binary outcome
B. A model that estimates the expected value of a continuous outcome
C. A model that includes only one independent variable
D. A model that uses logarithmic transformations to estimate the relationship between
variables
Answer a:A model that estimates the probability of a binary outcome
21. What is a simultaneous equation model?
A. A model that includes only one independent variable
B. A model that estimates the relationship between two continuous variables
C. A model that includes at least two equations that are interdependent
D. A model that includes only binary variables
Answer c: A model that includes at least two equations that are interdependent
22. . What is the purpose of using a simultaneous equation model?
A. To estimate the independent effect of each variable on the outcome variable
B. To estimate the effect of each variable on the outcome variable, while accounting for the
interdependence of the equations
C. To estimate the average value of the outcome variable
D. To estimate the standard deviation of the outcome variable
Answer b: To estimate the effect of each variable on the outcome variable, while
accounting for the interdependence of the equations
23. What is endogeneity?
A. The presence of measurement error in the dependent variable

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 B. The presence of measurement error in the independent variable
C. The presence of omitted variables in the model
D. The presence of reciprocal causation between the dependent and independent variables
Answer d: The presence of reciprocal causation between the dependent and independent
variables
24. What is time series data?
A. Data collected for a single individual or entity over a period of time.
B. Data collected at a single point in time.
C. Data collected over a period of time for multiple individuals or entities.
D. Data collected from different sources.
Answer c: Data collected over a period of time for multiple individuals or entities.
25. Which one of the following is not nature of non-stationary time series in econometrics?
A. It can study its behavior only for the time period under consideration.
B. Each set of time series data will therefore be for a particular episode.
C. As a consequence, it is not possible to generalize it to other time periods.
D. As a consequence, it is possible to generalize it to other time periods.
Answer d: As a consequence, it is possible to generalize it to other time periods.
26. What is the difference between time series data and cross-sectional data?
A. Time series data is collected over a period of time for multiple individuals or entities,
while cross-sectional data is collected at a single point in time.
B. Time series data is collected at a single point in time, while cross-sectional data is
collected over a period of time for multiple individuals or entities.
C. Time series data is collected for a single individual or entity over a period of time, while
cross-sectional data is collected for multiple individuals or entities over a period of time.
D. There is no difference between time series data and cross-sectional data

Answer a: Time series data is collected over a period of time for multiple individuals or
entities, while cross-sectional data is collected at a single point in time.

27. What is the primary advantage of using a fixed-effect model?

A. It allows for the control of time-invariant unobserved heterogeneity.
B. It allows for the analysis of trends over time.

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 C. It allows for the estimation of the individual-specific effect.
D. It allows for the control of time-varying unobserved heterogeneity
Answer a: It allows for the control of time-invariant unobserved heterogeneity.
28. What is the difference between a fixed-effect model and a random-effect model?
A. A fixed-effect model assumes that the individual-specific effect is fixed, while a random-
effect model assumes that the individual-specific effect is random.
B. A fixed-effect model assumes that the individual-specific effect is random, while a
random-effect model assumes that the individual-specific effect is fixed.
C. There is no difference between a fixed-effect model and a random-effect model.
D. A fixed-effect model and a random-effect model are used for different types of data.

Answer a: fixed-effect model assumes that the individual-specific effect is fixed, while a
random-effect model assumes that the individual-specific effect is random.

29. What is the difference between cross-sectional data and panel data?
A. Cross-sectional data is collected for multiple individuals or entities over a period of time,
while panel data is collected at a single point in time.
B. Cross-sectional data is collected at a single point in time, while panel data is collected
over a period of time for multiple individuals or entities.
C. Cross-sectional data is collected for a single individual or entity over a period of time,
while panel data is collected for multiple individuals or entities over a period of time.
D. There is no difference between cross-sectional data and panel data

Answer c: CCross-sectional data is collected for a single individual or entity over a period
of time, while panel data is collected for multiple individuals or entities over a period of time.

30. What is panel data?

A. Data collected at a single point in time.
B. Data collected over a period of time for multiple individuals or entities.
C. Data collected for a single individual or entity over a period of time.
D. Data collected from different sources.
Answer b: Data collected over a period of time for multiple individuals or entities.

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