JM UNSECCESS LAB (USL)

BACHELOR OF SCIENCE IN ECONOMICS AND FINANCE

(BEF 2)

ECONOMETRICS

PRE - TEST FOR SEMESTER ONE EXAMINATIONS

ACADEMIC YEAR 2024/2025

REG NO:………………………………
DATE: …. DECEMBER, 2024
TIME ALLOWED: 2 HR & 30 MINUS
……………………………………………………………………………………………………….
GENERAL INSTRUCTIONS:
1. This paper consists of Four (5) questions, Divided into Two sections (A and B)
2. Read the instructions careful for each question
3. Attempt ALL questions from each section
4. Marks are allocated for each question, plan wisely.
5. Your answer should be relevant and to the point.
6. This question paper should not leave the examination room.
7. You are reminded to adhere to ALL Examination Regulations.

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 SECTION A (40 Marks): Answer All Questions
Question One [20 Marks]
This question consists of (40) multiple choice question (0.5 marks) for each. For each question
write the LETTER that corresponds to the correct answer.
1. What are panel Data?
A) Data Containing units measured at different time points
B) Data Where each unit is measured at more than one time point
C) Data containing skewed variables distribution
D) Data measured at one point in time
2. What does it mean when we say that our panel is balanced?
A) When we have more time periods than units
B) When we have a larger sample of units
C) When we have an equal number time periods per unit
D) When we have an unequal number of time periods per unit
3. Studying inflation in Tanzania from 1970 to 2020 is an example of using
A) Randomized experimental data
B) Panel data
C) Cross-sectional data
D) Time series data
4. Analyzing the effect of minimum wage changes on teenage employment across the East Africa
countries from 1980 to 2020 is an example of using
A) Panel data
B) Time series data
C) Cross-sectional data
D) None of the above
5. What is the meaning of the term "heteroscedasticity"?
A) The variance of the errors is not constant
B) The variance of the dependent variable is not constant
C) The errors are not linearly independent of one another
D) The errors have non-zero mean
6. The correlation coefficient is used to determine:
A) A specific value of the y-variable given a specific value of the x-variable
B) A specific value of the x-variable given a specific value of the y-variable
C) The strength of the relationship between the x and y variables
D) None of these

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7. If the correlation coefficient is a positive value, then the slope of the regression line
A) must also be positive
B) can be either negative or positive
C) can be zero
D) cannot be zero
8. In regression, the equation that describes how the response variable (y) is related to the
explanatory variable (x) is:
A) the correlation models
B) the regression models
C) used to compute the correlation coefficient
D) None of these alternatives is correct
9. Multiple linear regression modeling is a statistical framework for developing a mathematical
equation that describes how
A) one explanatory and one or more response variables are related
B). several explanatory and several response variables response are related
C) one response and more explanatory variables are related
D) All of these are correct.
10. In regression analysis, the variable that is being predicted is the
A) response, or dependent, variable
B) independent or explanatory, variable
C) intervening variable
D) is usually
11. In the simple linear regression model, the regression slope;
A) Represents the elasticity of Y on X
B) Indicates by how many units Y increases, given a one unit increase in X
C) Indicates by how many percent Y increases, given a one percent increase in X
D) When multiplied with the explanatory variable will give you the predicted Y
12. In regression analysis, if the independent variable is measured in kilograms, the dependent
A) must also be in kilograms
B) must be in some unit of weight
C) cannot be in kilograms
D) can be any units xiv.
13. E[U/x] = 0 say that;
A) The sample mean of the Xs is much larger than the sample mean of the errors.
B) Dividing the error by the explanatory variable results in a zero

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 C) The sample regression function residuals are unrelated to the explanatory variable
D) The conditional distribution of the error given the explanatory variable has a zero mean.
14. The normality assumption implies that:
A) The population error u is dependent on the explanatory variables and is normally distributed
with mean equal to one and variance σ².
B) The population error u is independent of the explanatory variables and is normally distributed
with mean equal to one and variance σ
C) The population error u is dependent on the explanatory variables and is normally distributed
with mean zero and variance σ.
D) The population error u is independent of the explanatory variables and is normally distributed
with mean zero and variance σ².
15. In least squares regression, which of the following is not a required assumption about the error
term &?
A) The expected value of the error term is one.
B) The variance of the error term is the same for all values of x.
C) The values of the error term are independent.
D) The error term is normally distributed
16. High (but not perfect) correlation between two or more independent variables is called
A) Heteroskedasticity
B) Homoscedasticity
C) Multicollinearity
D) Micro numerosity
17. Consider the following regression equation: y = BO+B1X1+B2X2 + U. What does B₁ imply?
A) β₁ Measures the ceteris paribus effect of X₁ on X2.
B) B₁ Measures the ceteris paribus effect of y on X1.
C) B₁ Measures the ceteris paribus effect of X₁ on y.
D) B₁ Measures the ceteris paribus effect of X₁ on μ
18. Which of the following is true of R²?
A) R2 is also called the standard error of regression.
B) A low R²indicates that the Ordinary Least Squares line fits the data well.
C) R2usually decreases with an increase in the number of independent variables in a regression.
D) R2shows what percentage of the total variation in the dependent variable, Y, is XX. explained
by the explanatory variables.
19. The Gauss-Markov theorem will not hold if
A) The error term has the same variance given any values of the explanatory variables
B) The error term has an expected value of zero given any values of the independent variables

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 C) The independent variables have exact linear relationships among them
D) The regression model relies on the method of random sampling for collection of data
20. Econometrics is the branch of economics that,
a) Studies the behavior of individual economic agents in making economic decisions
b) Uses extensive data analysis and surveys to understand consumer behavior and market trends.
c) applies mathematical methods to represent economic theories and solve economic problems
d) Develops and uses statistical methods for estimating economic relationship
21. If the values of two variables move in the same direction,
a) The correlation is said to be non-linear
b) The correlation is said to be linear
c) The correlation is said to be negative
d) The correlation is said to be positive
22. The independent variable is used to explain the dependent variable in
a) Linear regression analysis
b) Multiple regression analysis
c) Non-linear regression analysis
d) None of the above
23. In regression analysis, the variable that is being predicted is the:
a) Regressor variable
b) Regressand variable
c) Control variable
d) Random variable
24. Consider the following regression equation: y = βo + β₁x1 + β2X2 + e. What does β1 imply?
a) β1 measure the ceteris paribus effect of X1 on X2.
b) β1 measure the ceteris paribus effect of y on X1.
c) β1 measure the ceteris paribus effect of X1 on y.
d) β1 measure the ceteris paribus effect of X1 on u.
25. A regression analysis between sales (in $1000) and price (in dollars) resulted in the following
equation: y = 50,000-8X The above equation implies that an
a) increase of $1 in price is associated with a decrease of $8 in sales
b) increase of $8 in price is associated with an increase of $8,000 in sales ii.
c) increase of $1 in price is associated with a decrease of $8000 in sales
d) increase of $1 in price is associated with a decrease of $42,000 in sales
26. Imagine an economist studying the relationship between household income (X) and monthly
expenditure (Y). They use regression to:
a) Predict the exact monthly bill for any income level.
b) Prove higher income directly causes higher spending.
c) Measure how strongly and in which direction income affects spending.
d) Calculate the exact percentage of spending directly caused by income.
27. In a regression analysis if SSE 200 and SSR 300, then the coefficient of determination is

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 a) 0.6667
b) 0.6000
c) 0.4000
d) 1.5000
28. If the correlation coefficient is 0.8, the percentage of variation in the response variable explained
by the variation in the explanatory variable is
a) 0.80%
b) 80%
c) 0.64%
d) 64%
29. If heteroskedasticity is present in a regression model, it:
a) Does not affect the validity of the estimated coefficients.
b) Makes the standard errors unreliable, leading to inaccurate confidence intervals.
c) Can be corrected by transforming the dependent variable.
d) Indicates the presence of multicollinearity.
30. In least squares regression, which of the following is not a required assumption about the error
term c?
a) The expected value of the error term is one.
b) The variance of the error term is the same for all values of x.
c) The values of the error term are independent.
d) The error term is normally distributed.
31. In hypothesis testing, the null hypothesis states:
a) The estimated coefficient is statistically significant.
b) There is no relationship between the independent and dependent variables.
c) The regression model is perfectly accurate.
d) The intercept of the regression line is equal to zero.
32. Point estimation in regression provides:
a) A range of values within which the true coefficient is likely to fall.
b) The best single estimate of the population coefficient based on the sample data.
c) A measure of the variability of the error term.
d) Information about the direction of the relationship between the variables.
33. Multicollinearity in regression occurs when:
a) The independent variables are highly correlated with each other.
b) The variance of the errors is not constant across all levels of the independent variable.
c) The dependent variable is not normally distributed.
d) The model is overfitted to the data.
34. In hypothesis testing, a Type I error occurs when:
a) You reject a true null hypothesis.
b) You fail to reject a false null hypothesis.
c) The p-value is greater than the significance level.
d) The confidence interval is too wide.

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35. The z-test is typically used when:
a) You have a large sample size and the population standard deviation is known.
b) You have a small sample size and the population standard deviation is unknown.
c) You are testing the equality of means for two paired samples.
d) You are comparing the variances of two populations.
36. The critical value in hypothesis testing defines the:
a) Minimum level of significance required to reject the null hypothesis.
b) Range of values within which the true parameter is likely to fall.
c) Point estimate of the population parameter.
d) Standardized test statistic used for comparison.
37. The F-test is commonly used for:
a) Comparing the means of two independent samples with unequal variances.
b) Testing the equality of variances for two populations.
c) Assessing the overall significance of a multiple regression model.
d) Evaluating the goodness-of-fit of a non-linear regression model.
38. Which of the following statement about R¹ and adjusted R³ is correct?
a) An increase in the values of R and adjusted R does not always mean that the additional variable
included in a regression model is statistically significant.
b) The value of adjusted R can increase or decrease when an additional variable is included in a
regression model.
c) Both statement A and statement B are correct.
d) Statement B is correct but statement A is incorrect.
Question Two [20 Marks]
Match the items of List A with the letter of items in List B
List A List B
(i). R-squire A. Tracks Individuals/Entities Over Time.
(ii). Statistical Inference B. Minimizes Prediction Errors in Regression.
(iii). Ordinary Least Squares C. Error Term Is Normally Distributed.
(iv). Independent Variable D. Strength Of Linear Relationship.
(v). Unbiasedness Property E. Difference Between Actual and Predicted
(vi). Exogeneity Values.
(vii). Normality Assumption F. Combines Observations from Different Time
(viii). Linearity Assumption Point.
(ix). Best linear Unbiased Estimators G. Straight-Line Relationship Between
(x). Non-experimental Data Variables.
(xi). Coefficient of Correlation H. Probability Of Observing Extreme Results
(xii). Sample Under True Null Hypothesis.
(xiii). Error Term I. Ideal Regression Estimates (Unbiased,
(xiv). No perfect Collinearity Minimum Variance).
(xv). Panel Data J. Predicted/Explained by The Regression
(xvi). Pooled Cross-sectional Data Model.
(xvii). Level of Significance
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 (xviii). Dependent Variable K. No Exact Linear Relationship Between
(xix). Simple regression Model Independent Variables
(xx). Endogeneity Problem L. Drawing Conclusion About Population Based
on Sample Data.
M. Observational Data, Potentially Biased
N. Explains How Well the Model Fits the
Dependent Variable.
O. Estimator’s Average Equals the True
Population Parameter.
P. Only One Independent Variable.
Q. Statistical Test for The Model’s Overall Fit.
R. Used To Explain/Predict the Dependent
Variable.
S. Subset Of Population for Analysis,
Representing the Whole.
T. Explanatory Variables Are Correlate with
The Error Term.
U. Key Assumption for A Causal Interpretation
of The Regression, And Unbiasedness Of The
OLS Estimators.

SECTION B (60 Marks) Answer All Question

Question Three [20 Marks]
a. With examples Differentiate between the following terms [5 Marks]
i). Cross-Sectional And Time Series Data
ii). Parameters And Static
iii). Correlation Coefficient and Coefficient of Determination
iv). Pooled Cross-Section Data and Panel Data.
v). Mathematical And Econometric Models
b. State and briefly explain five (5) Classical Linear Regression Model assumptions. [5 Marks]
c. Consider the following multiple linear regression model; Yi = β0+β1X1+Ui, where y is the
dependent variable, X1, is the explanatory variables and u is the stochastic disturbance term.
i). explain why we include the term Ui in the regression model [1 Marks]
ii). Derive the least-square estimators of population parameters [6 Marks]
d. Briefly explain what will be the consequences for the ordinary least square (OLS) ESTIMATORS
IF; [4 Marks]
i). Heteroscedasticity is present in a regression model but ignored
ii). OLS used in the presence of autocorrelation
iii). OLS is used in the presence of Multicollinearity
iv). A relevant variable is omitted from a regression equation.
Question Four [20 Marks]
Suppose a linear regression model was estimated using ordinary least squares (OLS) with wage as
the dependent variable. Independent variables included in the model were education (educ) in years

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of formal education. Experience (exper) in years of workforce experience. Training captured as weeks
spent in job training and dummy variable sex (female).

wage coef St.err. t-value p-value [95% Interval]

educ 0.572 0.049 0.000 0.475 0.668
exper 0.025 0.012 0.029 0.003 0.048
training 0.141 0.021 0.000 0.099 0.183
fema -1.811 0.265 0.000 -2.331 -1.291
constant -1.568 0.725 0.031 -2.991 -0.145

Mean dependent var 5.896 SD dependent var 3.693

R-square 0.364 Number of obs 526
F-test 74.398 Prof>F 0.000
Table 1: OLS Wage Estimation Results
***p<0.o1, **p<0.05, *p<0.1
From the OLS results presented in Table 1;

i. Calculate the missing t-values for all coefficients in the regression output table [2.5 Marks]
ii. Write of the expression of the estimated model [6 Marks]
iii. Which of the four coefficients can be considered as most efficient? [2Marks]
iv. Which of the estimated regression coefficients are statically significant? And Why? [4 Marks]
v. Interpret all of the estimated regression coefficients [4 Marks]
vi. What percentage of variation in wage can be explained by the regression model? [1.5 Marks]
Question Five [20 Marks]
In determining the relationship between the age of managing directors, X and their Systolic Blood
Pressure (SBP), Y, a sample of eight managing directors were used. After recording their age and
SBP, a computer gives the following outputs
n= 8, ∑ 𝑋=544, ∑ 𝑋 2 =37028, ∑ 𝑌=552, ∑ 𝑌 2 =38132, ∑ 𝑋𝑌 =37560
i. Compute the correlation coefficient [3 Marks]
ii. Interpret the value and the sign of the correlation coefficient [1 Marks]
iii. Find the regression line of Systolic Blood Pressure (SBP) on the age [5 Marks]
iv. Interpret the values of regression coefficients [2Marks]
v. Predict the SBP of the managing director aged 55 years. [1 Marks]
vi. Compute the standard error of slope coefficient [6 Marks]
vii. Compute and interpret the coefficient of determination [2 Marks]

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