1. What is the relationship, if any, between t-distributed and F-distributed random variables?

(a) A t-variate with z degrees of freedom is also an F(1, z)

(b) The square of a t-variate with z degrees of freedom is also an F(1, z)
(c) A t-variate with z degrees of freedom is also an F(z, 1)
(d) There is no relationship between the two distributions.

2. Consider a simple regression model with coefficient standard errors calculated using the usual formulae. Which of
the following statements is/are correct regarding the standard error estimator for the slope coefficient?

(i) It varies positively with the square root of the squares of residual (s)
(ii) It varies positively with the spread of X about its mean value
(iii) It varies positively with the spread of X about zero
(iv) It varies positively with the sample size T

(a) (i) only

(b) (i) and (iv) only
(c) (i), (ii) and (iv) only
(d) (i), (ii), (iii) and (iv).

3. What result is proved by the Gauss-Markov theorem?

(a) That OLS gives unbiased coefficient estimates

(b) That OLS gives minimum variance coefficient estimates
(c) That OLS gives minimum variance coefficient estimates only among the class of linear
unbiased estimators
(d) That OLS ensures that the errors are distributed normally

4. Which of the following is NOT correct with regard to the p-value attached to a test statistic?

(a) p-values can only be used for two-sided tests

(b) It is the marginal significance level where we would be indifferent between rejecting and not rejecting the null
hypothesis
(c) It is the exact significance level for the test
(d) Given the p-value, we can make inferences without referring to statistical tables

5. What is the relationship, if any, between the normal and t-distributions?

(a) A t-distribution with zero degrees of freedom is a normal
(b) A t-distribution with one degree of freedom is a normal
(c) A t-distribution with infinite degrees of freedom is a normal
(d) There is no relationship between the two distributions.

6. Two researchers have identical models, data, coefficients and standard error estimates. They test the same
hypothesis using a two-sided alternative, but researcher 1 uses a 5% size of test while researcher 2 uses a 10% test.
Which one of the following statements is correct?
(a) Researcher 2 will use a larger critical value from the t-tables
(b) Researcher 2 will have a higher probability of type I error - reject Ho (due to low confidence level)
(c) Researcher 1 will be more likely to reject the null hypothesis
(d) Both researchers will always reach the same conclusion.
7. Which of the following conditions must be fulfilled for the Durbin Watson test to be valid?

(i) The regression includes a constant term

(ii) The regressors are non-stochastic
(iii) There are no lags of the dependent variable in the regression
(iv) There are no lags of the independent variables in the regression

(a) (i), (ii) and (iii) only

(b) (i) and (ii) only
(c) (i), (ii), (iii) and (iv)
(d) (i), (ii), and (iv) only

8. If the residuals of regression on a large sample are found to be heteroscedastic which of the following might be a
likely consequence?

(i) The coefficient estimates are biased

(ii) The standard error estimates for the slope coefficients may be too small
(iii) Statistical inferences may be wrong

(a) (i) only

(b) (ii) and (iii) only
(c) (i), (ii) and (iii)
(d) (i) and (ii) only

9. In the estimated model where p is the price and q is the demanded quantity
of a certain good and y is disposable income, what is the meaning of the coefficient on log (p)?
(a) If the price increases by 1%, the demanded quantity will be 0.007% lower on average, ceteris paribus
(b) If the price increases by 1%, the demanded quantity will be 70% lower on average, ceteris paribus
(c) If the price increases by 1%, the demanded quantity will be 0.7% lower on average,
(d) None of the answers above is correct

To answer questions 10 through 12 consider the following estimated model (by OLS), where return is the total return
of holding a firm stock during one year, dkr is the firm’s debt to capital ratio, eps denotes earnings per share, netinc
denotes net income and salary denotes total compensation, in millions of dollars, for the CEO (estimated standard
errors of the parameters in parentheses below the estimates).

The model was estimated using data on n= 142 firms.

10. What can you say about the estimated coefficient of the variable salary? (consider a one-sided alternative for
testing significance of the parameters and use the Normal approximation)

(a) For each additional million dollars in the wage of the CEO, return is predicted to increase by 0.0035, on
average, ceteris paribus. But it is not statistically significant at a 5% level of significance.
 (b) For each additional million dollars in the wage of the CEO, return is predicted to decrease by 0.0035, on
average, ceteris paribus. And it is statistically significant at a5% level of significance.

(c) For each additional million dollars in the wage of the CEO, return is predicted to increase by 0.035, on
average, ceteris paribus. And it is statistically significant at a 1%level of significance.

(d) It is statistically significant at a 5%level of significance but it is not significant at 1% level of significance.

11. The model is estimated without including the variables dkr and eps, and an R2=0.0387 was obtained. What is the
value of the F-statistic for testing the null hypothesis that the coefficients on dkr and eps are both zero?

(a) 32.821
(b) 0.0570
(c) 0.0808
(d) We do have not enough information to answer this question, we would need to gather more information
from the restricted model.

12. What can you say about the coefficient on dkr (consider a one-sided alternative for testing significance of the
parameters and use the Normal approximation)

(a) It is statistically significant at a 5% level of significance and also significant at 1%level of significance
(b) It is statistically significant at 1% level of significance
(c) It is statistically significant at a 1% level of significance but it is not significant at 5% level of significance
(d) It is statistically significant at a 5% level of significance but it is not significant at 1% level of significance
(e) None of the answers above is correct remember for one-sided t-test p-value = usual p-value/2

13. In testing multiple exclusion restrictions in the multiple regression model under the Classical assumptions, we are
more likely to reject the null that some coefficients are zero if:
(a) The Residuals sum of squares of the restricted model is large relative to that of the unrestricted model
(b) The Residuals sum of squares of the restricted model is small relative to that of the unrestricted model
(c) The total sum of squares,TSS, is large
(d) The intercept parameter is greater than the significance level
(e) Both a) and d) above
(f) Both c) and d) above

14. Testing for the normality of residual, statistic Chi-square(2) = 31.03 with p-value = 0.00000, the conclusion should
be:

a. error is normally distributed

b. error isn’t normally distributed
c. No conclusion yet

1 2 3 4 5 6 7 8 9 10 11 12 13 14
B A C A C B A B C A B D A B

Q10 and 12: remember for one-sided t-test p-value = usual p-value/2