725_sample exam_1_answers_2010

725_sample - ECON 725 2010 SPRING KEY FOR SAMPLE EXAM S.C AHN Q1 1 A 2 DNA If two random variables are normally distributed then zero correlation

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1 | ECN 725 ECON 725 KEY FOR SAMPLE EXAM S.C. AHN 2010 SPRING Q1. 1) A 2) DNA. If two random variables are normally distributed, then, zero correlation also means stochastic independence. 3) A. If X and Y are normal, the conditional mean of Y given X is linear in X: Pr ( | ) oj y x = (|) Eyx . 4) DNA, ˆ minimizes SSE. Thus, UR R SSE SSE , where UR means “unrestricted” and R means “restricted.” Thus, 22 1/ 1 / UR UR R R R SSE SST SSE SST R  . 5) DNA. ˆ can be shown to be unbiased by the law of iterative expectation, as long as the regressors are strictly exogenous. 6) DNA. When 1 Tk  , [( 1 ) / ] R kR k k  . Thus, 2 0 R if 2 /( 1) Rk k  . 7) DNA. There are two possible reasons. First, if you do two separate t -tests with 5 % of significance level, the type I error becomes more than 5%. Second, if the regressors corresponding to 2 and 3 are highly correlated, the individual t -tests are unreliable. This is called multicollinearity problem.
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This note was uploaded on 11/19/2010 for the course ECON 270a taught by Professor Ahn during the Spring '10 term at ASU.

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725_sample - ECON 725 2010 SPRING KEY FOR SAMPLE EXAM S.C AHN Q1 1 A 2 DNA If two random variables are normally distributed then zero correlation

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