Econometrics Exam 1
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This exam consists of
ten
short questions
(
worth four points apiece
)
and
three
long
questions
(
worth twelve points each
)
, for a total of 76 points. You have 50 minutes
to answer all completely and clearly in the space provided.
1. What is
“
classical measurement error
”
, and how does it affect the OLS estimator?
2. You estimate the effect of a percentage change in the price of widgets on the
percentage
decrease
in
demand
for
widgets,
using
the
equation
ln
DEMAND
i
=
!
1
+
2
ln
PRICE
i
+
e
i
(
where
2
is interpreted as the own

price
elasticity
)
. You estimate that
ˆ
2
=
"
0.78
, with a standard deviation of
0.21
. How
would you test the hypothesis that demand is unit elastic
(
H
0
:
2
=
"
1
)
against the
alternative that it is not
(
H
A
:
2
" #
1
)
, without any help from Stata?
3. Suppose that you have no problem with endogeneity, but you estimate a model
using IV instead of OLS. What is the disadvantage of this technique? Support your
answer with a mathematical expression.
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 Spring '08
 Staff
 Econometrics, Regression Analysis, Standard Deviation, Variance, Econometrics Midterm

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