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Econometrics Midterm Practice Questions With Correct answers

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What is econometrics? Correct Answer Tools of economic theory, math, and statistical inference are applied to the analysis of economic phenomena. How do we do econometrics? What are the steps invol... ved? Correct Answer 1. Make a hypothesis 2. Collect data 3. Specify the model 4. Estimate the parameters 5. Check model specification - is the model good? 6. Test the hypothesis 7. Use the model to predict or forecast or answer questions Simple linear model Correct Answer yi= B1 + B2Xi + ui Bs are parameters/coefficients, X is regressor, u is error term What is the error term? Why do we have an error term? Correct Answer omitted explanatory variables, aggregation of variables (consumption function) model misspecification may be determined by expectations rather than actual values functional misspecification x instead of x^2 measurement error Linear Correct Answer linear in parameters:every term consists of a straightforward parameter multiplied by a variable linear in variables: every term consists of a straightforward variable multiplied by a parameter when to reject the null Correct Answer reject: t-stat > t-critical *don't forget to explain why: explanatory variable seen as significant at the % level B2hat - t-crit*se(B2hat)< B2hat < B2hat+ t-crit*se(B2hat) Method of OLS Correct Answer minimize the sum of the squared errors in order to have a very fitted line What is OLS? Correct Answer ordinary least squares most popular application of regression analysis What does OLS do? Correct Answer we sum the squared errors [Show More]

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