Practice Exam 2

Practice Exam 2 - Practice Midterm#2 Econ120C Spring 2008...

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1 Practice Midterm #2 May 17, 2008 Econ120C / Spring 2008 Instructor: Jenny Sun Multiple Choice 1) The Fixed Effects regression model a. has n different intercepts. b. the slope coefficients are allowed to differ across entities, but the intercept is “fixed” (remains unchanged). c. has “fixed” (repaired) the effect of heteroskedasticity. d. in a log-log model may include logs of the binary variables, which control for the fixed effects. Answer : a 2) If you included both time and entity fixed effects in the regression model which includes a constant, then a. one of the explanatory variables needs to be excluded to avoid perfect multicollinearity. b. you can use the “before and after” specification even for T > 2. c. you must exclude one of the entity binary variables and one of the time binary variables for the OLS estimator to exist. d. the OLS estimator no longer exists. Answer : c 3) In the panel regression analysis of beer taxes on traffic deaths, the estimation period is 1982-1988 for the 48 contiguous U.S. states. To test for the significance of entity fixed effects, you should calculate the F-statistic and compare it to the critical value from your , q F distribution, where q equals a. 48. b. 54. c. 7. d. 47. Answer : d 4) The main advantage of using panel data over cross sectional data is that it a. gives you more observations. b. allows you to analyze behavior across time but not across entities. c. allows you to control for some types of omitted variables without actually observing them. d. allows you to look up critical values in the standard normal distribution. Answer : c
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2 5) The conditions for a valid instruments do not include the following: a. each instrument must be uncorrelated with the error term. b. each one of the instrumental variables must be normally distributed. c. at least one of the instruments must enter the population regression of X on the Z ’s and the W ’s. d. perfect multicollinearity between the predicted endogenous variables and the exogenous variables must be ruled out. Answer : b 6) The rule-of-thumb for checking for weak instruments is as follows: for the case of a single endogenous regressor, a. a first stage F must be statistically significant to indicate a strong instrument.
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This note was uploaded on 03/26/2010 for the course ECON 120C 1 taught by Professor Sun during the Summer '08 term at UCSD.

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Practice Exam 2 - Practice Midterm#2 Econ120C Spring 2008...

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