Week 1 (Chapter 1) Introduction to Econometrics Exam Questions and Answers 100% Pass Verified & Updated

Week 1 (Chapter 1) Introduction to Econometrics Exam Questions and Answers 100% Pass Verified & Updated What is econometrics based upon? -Answer-the development of statistical methods for: 1) Estimating economic relationships 2) Testing economic theories 3) Evaluating and implementing government and business policy What is a common application of econometrics? -Answer-forecasting of important macroeconomic variables as: 1) interest rates 2) inflation rates 3) Gross domestic product (GDP) What are characteristics of economic indicators? -Answer-highly visible and often widely published What can econometric methods be used in? -Answer-economic areas that have nothing to do with macroeconomic forecasting Why has econometrics evolved as a separate discipline from mathematical statistics? - Answer-because the former focuses on the problems inherent in collecting and analyzing nonexperimental economic data. Nonexperimental data -Answer-Data that have not been obtained through a controlled experiment on individuals, firms, or segments of the economy. What is non experimental sometimes called? -Answer-observational data , or retrospective data , to emphasize the fact that the researcher is a passive collector of the data retrospective data -Answer-Data collected based on past, rather than current, information. Where is experimental data normally collected? -Answer-often collected in laboratory environments in the natural sciences (hard to obtain in social sciences) Despite, some social experiments being devised, why is it often impossible to conduct the kinds of controlled experiments that would be needed to address economic issues? -Answer-prohibitively expensive, or morally repugnant What do econometric methods come into play? -Answer-When we have an economic theory to test or when we have a relationship in mind that has some importance for business decisions or policy analysis empirical analysis -Answer-A study that uses data in a formal econometric analysis to test a theory, estimate a relationship, or determine the effectiveness of a policy. What is the first step in any empirical analysis? -Answer-is the careful formulation of the question of interest. economic model -Answer-A relationship derived from economic theory or less formal economic reasoning. What does an economic model consist of? -Answer-mathematical equations that describe various relationships utility maximization -Answer-The assumption that individuals make choices to maximize their well-being, subject to resource constraints In the context of consumption decisions,what does utility maximization lead to? - Answer-a set of demand equations. In the demand equation, what does the quantity demanded of each commodity depend on? -Answer-1) the price of the goods 2) the price of substitute and complementary goods 3) the consumer's income 4) the individual's characteristics that affect the taste. What do we do once we specify an economic model? -Answer-we need to turn it into what we call an econometric model . econometric model -Answer-An equation relating the dependent variable to a set of explanatory variables and unobserved disturbances, where unknown population parameters determine the ceteris paribus effect of each explanatory variable. Econometric analysis begins by; -Answer-specifying an econometric model, without consideration of the details of the model's creation. Once an econometric model has been specified, what can be stated? -Answer-Various hypotheses of interest can be stated in terms of the unknown parameters. What does an empirical analysis, by definition, require? -Answer-data What can happen once data on the relevant variables have been collected? -Answer- econometric methods are used to estimate the parameters in the econometric model and to formally test hypotheses of interest What is so important in empirical work? -Answer-data collection is so important cross-sectional data set -Answer-A data set collected by sampling a population (individuals, households, firms, cities, states, countries, or a variety of other units) at a given point in time What is an important feature of cross-sectional data? -Answer-is that we can often assume that they have been obtained by random sampling from the underlying population random sampling -Answer-A sampling scheme whereby each observation is drawn at random from the population. In particular, no unit is more like