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Problem:
(a) Why is an error term added to a regression and explain its importance in the OLS procedure?
(b) Suppose we have a linear equation with a constant term, one explanatory variable and an error term, show in details the steps required, using the OLS procedure, to derive the estimates of the constant term and that of the coefficient of the explanatory variable.
(c) Suppose a researcher wants to test whether the returns on a company stock (y) show unit sensitivity to two factors (factor x2 and factor x3) among three considered. The regression is carried out on 144 monthly observations. The regression is: Yt = β1 + β2x2t + β3x3t + β4x4t+ ut
i) What are the restricted and unrestricted regressions?
ii) If the two RSS are 502.4 and 302.8 respectively, perform an F-test of the restriction, showing all the required steps.
(d) How are the t-test and the F-test related and describe in which cases they cannot be applied?
A surplus on the current account of balance of payments can be financed by? 1. Inflow capital on capital account 2. A surplus on the government budget deficit 3. lending abroad on
In the table below are given the output (X), T.C., and Price for a firm. Complete the following table, and then answer the questions at the bottom of the table. X T.C P=A.R
Discuss the costs and benefits of establishing a common currency. So, there is a convergence issue in setting up the common currency - and there will also be a convergence prob
(1) The demand curve for oranges is given by the equation P = 5 – Q/200. The supply curve is given by P = Q/800. Q is measured in oranges per day and price is measured in dollars p
This firm will maximize profits by producing the level of output that corresponds to point: a. b. c. or d. ?? Refer to Figure for a perfectly competitive firm. Given the
Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol’s sales
What are the economic and social costs of high inflation levels? High inflation will have serious redistribution costs; make distortions to the economy; decrease international
1) A) Suppose that several months of data showed the CPI increasing at a 4.5% annual rate due largely to increases in the price of energy and food related commodities following sev
As stock markets have crashed, and uncertainty has increased, consumers move their money to the safest currencies and countries in the world. Predict the effects of an increase in
The sales of a company are the part of the total sales of industry. If the conditions of industry changes then the sales of each of the firm in the industry is affected. All teh ti
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