Introductory Econometrics Asia Pacific

1st Edition Wooldridge Test Bank

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Chapter 6: Multiple regression analysis: inference

1. What does the normality assumption imply?

A That the population error u is dependent on the explanatory variables and is normally distributed
with mean equal to one and variance σ2.
B That the population error u is independent of the explanatory variables and is normally distributed
with mean equal to one and variance σ.
C That the population error u is dependent on the explanatory variables and is normally distributed
with mean zero and variance σ.
D That the population error u is independent of the explanatory variables and is normally distributed
with mean zero and variance σ2.

ANS: D PTS: 1 DIF: Moderate TOP: Sampling distributions of the OLS estimators

2. Which of the following statements is true?

A Taking a log of a non-normal distribution yields a distribution that is closer to normal
B The mean of a non-normal distribution is 0 and the variance is σ2.
C The CLT assumes that the dependent variable is unaffected by unobserved factors.
D OLS estimators have the highest variance among unbiased estimators.

ANS: A PTS: 1 DIF: Moderate TOP: Sampling distributions of the OLS estimators

3. How is a normal variable standardised?

A By subtracting its mean from it and multiplying by its standard deviation.
B By adding its mean to it and multiplying by its standard deviation.
C By subtracting its mean from it and dividing by its standard deviation.
D By adding its mean to it and dividing by its standard deviation.

ANS: C PTS: 1 DIF: Moderate TOP: Sampling distributions of the OLS estimators

4. Which of the following is a statistic that can be used to test hypotheses about a single
population parameter?
A F statistic
B t statistic
C x2 statistic
D Durbin Watson statistic

ANS: B PTS: 1 DIF: Easy TOP: Testing hypotheses about a single population
parameter: the t test

5. Consider the equation, Y = 1 + 2x2 + u. A null hypothesis, H0: 2 = 0 states that:

A x2 has no effect on the expected value of 2.
B x2 has no effect on the expected value of Y.
C 2 has no effect on the expected value of Y.
D Y has no effect on the expected value of X2.
ANS: B PTS: 1 DIF: Moderate TOP: Testing hypotheses about a single population
parameter: the t test

6. What is the significance level of a test?

A The probability of rejecting the null hypothesis when it is false.
B One minus the probability of rejecting the null hypothesis when it is false.
C The probability of rejecting the null hypothesis when it is true.
D One minus the probability of rejecting the null hypothesis when it is true.

ANS: C PTS: 1 DIF: Moderate TOP: Testing hypotheses about a single population
parameter: the t test

7. Of the following, which shows how the general t statistic can be written?
A 𝐻𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒
t=
𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑒𝑟𝑟𝑜𝑟

B t = (estimate – hypothesised value)

C (𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒 – ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒)
t= 𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒

D (𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒 – ℎ𝑦𝑝𝑜𝑡ℎ𝑒𝑠𝑖𝑠𝑒𝑑 𝑣𝑎𝑙𝑢𝑒)

t= 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑒𝑟𝑟𝑜𝑟

ANS: D PTS: 1 DIF: Easy TOP: Testing hypotheses about a single population
parameter: the t test

8. Which of the following statements is true of confidence intervals?

A Confidence intervals in a CLM are also referred to as point estimates.
B Confidence intervals in a CLM provide a range of likely values for the population parameter.
C Confidence intervals in a CLM do not depend on the degrees of freedom of a distribution.
D Confidence intervals in a CLM can be truly estimated when heteroskedasticity is present.

ANS: B PTS: 1 DIF: Easy TOP: Confidence intervals

9. Which of the following statements is true?

A When the standard error of an estimate increases, the confidence interval for the estimate narrows
down.
B Standard error of an estimate does not affect the confidence interval for the estimate.
C The lower bound of the confidence interval for a regression coefficient, say j, is given by 𝛽̂J -
[standard error × (𝛽̂J)].
D The upper bound of the confidence interval for a regression coefficient, say j, is given by 𝛽̂J +
[Critical value × standard error (𝛽̂J)].

ANS: D PTS: 1 DIF: Moderate TOP: Confidence intervals

10. Which of the following tools is used to test multiple linear restrictions?
A t test
B z test
C F test
D Unit root test

ANS: C PTS: 1 DIF: Easy TOP: Testing multiple linear restrictions: the F test

11. Which of the following statements is true of hypothesis testing?

A The t test can be used to test multiple linear restrictions.
B A test of single restriction is also referred to as a joint hypotheses test.
C A restricted model will always have fewer parameters than its unrestricted model.
D OLS estimates maximise the sum of squared residuals.

ANS: C PTS: 1 DIF: Moderate TOP: Testing multiple linear restrictions: the F test

12. Which of the following correctly defines F statistic if SSRr represents sum of squared residuals
from the restricted model of hypothesis testing, SSRur represents sum of squared residuals of the
unrestricted model, and q is the number of restrictions placed?
A F = (SSRur − SSRr)/𝑞
SSRur/(𝑛−𝑘−1)
B (SSRr − SSRur)/𝑞
F=
SSRur/(𝑛−𝑘−1)
C (SSRur − SSRr)/𝑞
F=
SSRr/(𝑛−𝑘−1)
D (SSRur − SSRr)/(𝑛−𝑘−1)
F= SSRur/𝑞

ANS: B PTS: 1 DIF: Moderate TOP: Testing multiple linear restrictions: the F test

13. Which of the following statements is true?

A If the calculated value of F statistic is higher than the critical value, we reject the alternative
hypothesis in favour of the null hypothesis.
B The F statistic is always non-negative as SSRr is never smaller than SSRur.
C Degrees of freedom of a restricted model is always less than the degrees of freedom of an
unrestricted model.
D The F statistic is more flexible than the t statistic to test a hypothesis with a single restriction.

ANS: B PTS: 1 DIF: Moderate TOP: Testing multiple linear restrictions: the F test

14. If R2ur = 0.6873, R2r = 0.5377, number of restrictions = 3, and n – k – 1 = 229, what does the F
statistic equal?
A 21.2
B 28.6
C 36.5
D 42.1
ANS: C PTS: 1 DIF: Hard TOP: Testing multiple linear restrictions: the F test

15. Which of the following correctly identifies a reason why some authors prefer to report the
standard errors rather than the t statistic?
A Having standard errors makes it easier to compute confidence intervals.
B Standard errors are always positive.
C The F statistic can be reported just by looking at the standard errors.
D Standard errors can be used directly to test multiple linear regressions.

ANS: A PTS: 1 DIF: Moderate TOP: Reporting regression results

16. Whenever the dependent variable takes on just a few values it is close to a normal distribution.

ANS: F PTS: 1 DIF: Easy TOP: Sampling distributions of the OLS estimators

17. If the calculated value of the t statistic is greater than the critical value – the null hypothesis – H0
is rejected in favour of the alternative hypothesis, H1.

ANS: T PTS: 1 DIF: Easy TOP: Testing hypotheses about a single population
parameter: the t test

18. H1: j ≠ 0, where j is a regression coefficient associated with an explanatory variable, represents
a one-sided alternative hypothesis.

ANS: F PTS: 1 DIF: Easy TOP: Testing hypotheses about a single population
parameter: the t test

19. If ̂𝛽 1 and 𝛽̂2 are estimated values of regression coefficients associated with two explanatory
variables in a regression equation, then the standard error (𝛽̂1 – 𝛽̂2) = standard error (𝛽̂1) – standard
error (𝛽̂2).

ANS: F PTS: 1 DIF: Easy TOP: Testing hypotheses about a single linear
combination of the parameters

20. Standard errors must always be positive.

ANS: T PTS: 1 DIF: Easy TOP: Testing hypotheses about a single linear
combination of the parameters