Final - Final Exam ECON 3210 O Use of Economic Data Laura Salisbury York University This exam contains 7 questions and 12 pages(including this one for a

# Final - Final Exam ECON 3210 O Use of Economic Data Laura...

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Final ExamECON 3210 O: Use of Economic DataLaura SalisburyYork UniversityApril 16, 2014This exam contains 7 questions and 12 pages (including this one), for a total of 108 points.Read questions carefully, and answer all questions in the booklets provided.Formulas andtables are provided on the last 5 pages of the exam. You may use a calculator. You have 180minutes. Good luck!1
1. For each of the following, indicate whether the statement is true or false.Explain youranswers(a)(4 pts)Econometric forecasting is more accurate for values of explanatory variablesthat are closer to the sample mean.(b)(4 pts)Linear regression models are flawed because it is impossible for them tocapture nonlinear relationships between variables.(c)(4 pts)In the presence of heteroskedasticity, least squares estimates are biased.(d)(4 pts)You are testing a null hypothesis, and the p-value associated with your testis 0.025. You should only reject the null hypothesis if you are willing to accept aprobability of type I error of 2.5% or greater.2. You are estimating the following regression equation:y=β1+β2x2+β3x3+eYou are given the following information:R2= 0.4631R2= 0.4233NXi=1(yi-y)2= 1425.68NXi=1x22i= 855.17NXi=1x23i= 1252.33x2= 4.252x3= 86.71r23=-0.676(a)(4 pts)Calculate the sum of squared errors (SSE).(b)(4 pts)Calculate N.(c)(4 pts)Calculate the standard error ofb2.2
3. Sean the econometrician is studying the effect of the price of flour on the price of crois-sants. He is also interested in how the price of butter affects the price of croissants. Heestimates the following regression models:CR=β1+β2FL+e(1)CR=β1+β2FL+β3BU+e(2)CR is the price of croissants (in dollars), FL is the price per pound of flour (in cents),and BU is the price per pound of butter (in dollars). Sean obtains the following results,with standard errors in parentheses:Variable:(1)(2)FL0.1570.097(0.046)(0.038)BU0.028(0.012)CONSTANT1.5321.267(0.257)(0.285)Observations4242R20.4520.514(a)(4 pts)Provide an economic interpretation forb1andb2in specification (1).(b)(4 pts)Using specification (1), provide a 95% interval estimate forβ2.(c)(4 pts)Using specification (1), test the hypothesis that a 1 cent increase in theper-pound price of flour causes the price of croissants to increase by \$0.10, againstthe alternative hypothesis that a 1 cent increase in the price of flour causes the priceof croissants to increase bymorethan \$0.10. Perform this test at the 1% level.(d)(4 pts)Compare the coefficients on the price of flour in specifications (1) and (2).Based on these coefficients, do you think the price and flour and price of butter arepositively or negatively correlated? Explain your answer.3
4. You are interested in understanding what determines the frequency with which peopledrive their cars.Your hypothesis is that automobile use is affected by the price ofsubstitute modes of transportation as well as the price of gas. You obtain data on averageannual kilometres (KIL) driven in 2500 cities worldwide, denominated in thousands ofkilometres, as well as the per-trip cost of public transit (PT
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