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Circle the right answer. Only one answer per question. No credit is given for multiple answers or additional explanations.
Two points per question for correct answers.
1) One of the following statements is not true. In Probit and Logit models
a. the t-statistic should still be used for testing a single restriction.
b. you can include binary variables as explanatory variables.
c. you use Maximum Likelihood estimation.
d. F-statistics should not be used, since the models are nonlinear.
2) Consider the Probit model Pr(𝑌 = 1| 𝑋) = Φ(𝛽0 + 𝛽1 𝑋), where 𝑋 is a female dummy variable. The marginal effect
(𝑀𝐸) of being female(as opposed to male) on Pr(𝑌 = 1) is given by
a. 𝑀𝐸 = Φ(𝛽̂0 + 𝛽̂1 ) − Φ(𝛽̂0 ).
b. 𝑀𝐸 = 𝛽̂1.
c. 𝑀𝐸 = Φ(𝛽̂0 + 𝛽̂1 𝑋̅) − Φ(𝛽̂0 ) (Where 𝑋̅ denotes the mean of 𝑋).
d. 𝑀𝐸 = Φ′ (∙)𝛽̂1 (Where Φ′(∙) denotes the derivative of Φ(∙)).
3) In the regression model 𝑌𝑖 = 𝛽0 + 𝛽1 𝐶𝑖 + 𝛽2 𝐹𝑖 + 𝛽3 (𝐶𝑖 × 𝐹𝑖 ) + 𝑢𝑖 , where Y denotes earnings, C a dummy variable for
having a college degree and F a gender dummy variable, 𝛽2
a. is the gender difference in earnings for someone with a college degree.
b. is the gender difference in earnings for someone without a college degree.
c. is the difference in earnings between those with and without a college degree when 𝐹𝑖 = 0.
d. cannot be estimated since 𝐹𝑖 and (𝐶𝑖 × 𝐹𝑖 ) are perfectly collinear when 𝐹𝑖 = 0.
4) In multiple regression, the R2 increases whenever an explanatory variable is
a. added unless the coefficient on the added variable is exactly zero.
b. added unless the adjusted R2falls.
c. added unless there is heteroskedasticity.
d. added unless the added variable is not statistically significant at the 5%-level.
Analytical Questions
12.1. State whether the following statements are true or false. Briefly justify your answer.
a. When autocorrelation is present, OLS estimators are biased as well as inefficient.
b. The Durbin–Watson d test assumes that the variance of the error term ut is homoscedastic.
c. The first-difference transformation to eliminate autocorrelation assumes that the coefficient of autocorrelation ρ is -1.
d. The R2 values of two models, one involving regression in the first difference form and another in the level form, are not
directly
comparable.
e. A significant Durbin–Watson d does not necessarily mean there is autocorrelation of the first order.
f. In the presence of autocorrelation, the conventionally computed variances and standard errors of forecast values are
inefficient.
g. The exclusion of an important variable(s) from a regression model may give a significant d value.
h. In the AR(1) scheme, a test of the hypothesis that ρ = 1 can be made by the Berenblutt–Webb g statistic as well as the
Durbin–Watson d statistic.
i. In the regression of the first difference of Y on the first differences of X, if there is a constant term and a linear trend
term, it means in the original model there is a linear as well as a quadratic trend term.
In studying the movement in the production workers’ share in the value added (i.e., labor’s share), the following models
were considered by
Model A: Yt = β0 + β1t + ut
Model B: Yt = α0 + α1t + α2t2 + ut
where Y = labor’s share and t = time. Based on annual data for 1949–1964, the following results were obtained for the
primary metal industry:
Model A: Y ˆt = 0.4529 - 0.0041t R2 = 0.5284 d = 0.8252
(-3.9608)
Model B: Y ˆt = 0.4786 - 0.0127t + 0.0005t2 R2 = 0.6629 d = 1.82
(-3.2724) (2.7777)