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Xet/Cec 401: Introduction To Econometrics I Question Paper

Xet/Cec 401: Introduction To Econometrics I

Course:Bachelor Of Economics And Bachelor Of Arts

Institution: University Of Nairobi question papers

Exam Year:2012

University of Nairobi
Special/Supplementary Examinations 2011/2012
Fourth Year Examinations for the Degree of Bachelor of Economics and Bachelor of Arts
XET/CEC 401: Introduction to Econometrics I
Date: October 31, 2012 Time: 9.00-11.00 A.M.
Instructions:
i. Students are provided with some statistical tables and formulae that they might find useful.
ii. Answer question ONE and any other TWO questions.

Question ONE: - Compulsory (30 marks)
a) The following table contains data on profits and costs (in 000’s of shillings) for a sample of 8 firms. Profits and costs are hypothesized to be linearly related.
Profits 6 4 11 8 13 9 6 13
costs 64 35 116 92 125 78 72 33

i) Compute the linear correlation coefficient between profits and costs and interpret your results. (6 marks)
ii) Compute the rank correlation coefficient and comment on your results. How does your answer differ from that in (i)? (6 marks)

b) Use the data provided in a) to fit an OLS, regression line relating profits and costs and interpret your results. (8 marks).
c) With the use of appropriate examples, discuss clearly what is meant by BLUE properties in OLS methods. (10 marks)

Question TWO: (20 marks)
a) Distinguish between heteroscedasticity, multicollinearity and autocorrelation. Why would an econometrician need to worry abut each of these problems? [12 marks]
b) Discuss the consequences of multicollinearity in an econometric relationship. [8 marks]

Question THREE: (20 marks)
The following model was obtained by a researcher when investigating the response of demand of automobiles to prices for am period of 6 years.
Y = 5807 + 3.24X r^2 = 0.22
(0.45) (1.634)
The t values are provided in parenthesis.
a) Test the hypothesis that the intercept and the slope are equal to zero at the 5% level of significance. [6 marks]
b) Compute the elasticity of demand when the price is equal to 10 and comment on your results. [4 marks]
c) Interpret your r^2 and explain how it relates to the slope of the regression line. [4 marks]
d) Establish a 95% confidence interval for the population slope. [6 marks]

Question FOUR: (20 marks)
a) Discuss the three main goals of econometrics that you are familiar with. [6 marks]
b) Discuss clearly the desirable properties of a good econometrics model. [8 marks]
c) Briefly explain the criteria you would use to evaluate the results of an econometric model. [6 marks].

Question FIVE: (20 marks)
Write brief notes on the following concepts as applied in Econometrics:
i. Gausss-Markov Theorem.
ii. Regression versus correlation.
iii. Disturbance term versus residual.
iv. Limitations of correlation analysis.
v. Limitations of correlation analysis
vi. Model specification/misspecification.

Xet/Cec 401: Introduction To Econometrics I Question Paper

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