Deck 7: Multiple Regression Analysis With Qualitative Information: Binary or Dummy Variables

Question 1

Which of the following is true of Chow test?

A)It is a type of t test.
B)It is a type of sign test.
C) It is only valid under homoskedasticty.
D) It is only valid under heteroskedasticity.

Answer 1

C
Explanation: Since the Chow test is just an F test, it is only valid under homoskedasticity.

Question 2

Which of the following Gauss-Markov assumptions is violated by the linear probability model?

A)The assumption of constant variance of the error term.
B)The assumption of zero conditional mean of the error term.
C) The assumption of no exact linear relationship among independent variables.
D) The assumption that none of the independent variables are constants.

Answer 2

A
Explanation: The linear probability model violates the assumption of constant variance of the error term.

Question 3

If the p-value of an F statistic 2.63 is 0.034, then we can say that the problem of interest is significant at the 5% level.​

Answer 3

True
Explanation: If the p-value of an F statistic 2.63 is 0.034, then we can say that the problem of interest is significant at the 5% level.​

Question 4

In a regression model, which of the following will be described using a binary variable?

A)Whether it rained on a particular day or it did not
B)The volume of rainfall during a year
C) The percentage of humidity in air on a particular day
D) The concentration of dust particles in air

Question 5

In the following regression equation, y is a binary variable: y = ₀+ ₁x₁+… _k x_k+ u
In this case, the estimated slope coefficient, measures _____.

A)the predicted change in the value of y when x₁ increases by one unit, everything else remaining constant
B)the predicted change in the value of y when x₁ decreases by one unit, everything else remaining constant
C) the predicted change in the probability of success when x₁ decreases by one unit, everything else remaining constant
D) the predicted change in the probability of success when x₁ increases by one unit, everything else remaining constant

Question 6

Which of the following is true of dummy variables?

A)A dummy variable always takes a value less than 1.
B)A dummy variable always takes a value higher than 1.
C) A dummy variable takes a value of 0 or 1.
D) A dummy variable takes a value of 1 or 10.

Question 7

The sum of squared residuals form of the F statistic can be computed easily even when many independent variables are involved; this particular F statistic is usually called the _____ in econometrics.

A)Chow statistic
B)t statistic
C) ​
statistic
D) ​LM statistic

Question 8

A _____ variable is used to incorporate qualitative information in a regression model.

A)dependent
B)continuous
C) binomial
D) dummy

Question 9

Consider the following regression equation: y = ₀+ ₁x₁+ …+ _k x_k + u In which of the following cases, the dependent variable is binary?

A)y indicates the gross domestic product of a country
B)y indicates whether an adult is a college dropout
C) y indicates household consumption expenditure
D) y indicates the number of children in a family

Question 10

Which of the following is true of dependent variables?

A)A dependent variable can only have a numerical value.
B)A dependent variable cannot have more than 2 values.
C) A dependent variable can be binary.
D) A dependent variable cannot have a qualitative meaning.

Question 11

Consider the following regression equation: y = ₀+ ₁x₁ + … + _kx_k + u In which of the following cases, is 'y' a discrete variable?

A)y indicates the gross domestic product of a country
B)y indicates the total volume of rainfall during a year
C) y indicates household consumption expenditure
D) y indicates the number of children in a family

Question 12

In a self-selection problem, the explanatory variables can be:​

A)​endogenous.
B)​exogenous.
C) ​independent.
D) ​random.

Question 13

The income of an individual in Budopia depends on his ethnicity and several other factors which can be measured quantitatively. If there are 5 ethnic groups in Budopia, how many dummy variables should be included in the regression equation for income determination in Budopia?

A)1
B)5
C) 6
D) 4

Question 14

The following simple model is used to determine the annual savings of an individual on the basis of his annual income and education. Savings = β₀ + ₀ Edu + β₁Inc + u
The variable 'Edu' takes a value of 1 if the person is educated and the variable 'Inc' measures the income of the individual.
​
​
Refer to the above model. If 0 > 0, _____.

A)uneducated people have higher savings than those who are educated
B)educated people have higher savings than those who are not educated
C) individuals with lower income have higher savings
D) individual with lower income have higher savings

Question 15

The following simple model is used to determine the annual savings of an individual on the basis of his annual income and education. Savings = The variable 'Edu' takes a value of 1 if the person is educated and the variable 'Inc' measures the income of the individual.
​
Refer to the model above. The inclusion of another binary variable in this model that takes a value of 1 if a person is uneducated, will give rise to the problem of _____.

A)omitted variable bias
B)self-selection
C) dummy variable trap
D) heteroskedastcity

Question 16

A binary response is the most extreme form of a discrete random variable that takes on:​

A)​only two values, zero and one.
B)​only one value, zero.
C) ​only one value, one.
D) ​any value.

Question 17

Which of the following problems can arise in policy analysis and program evaluation using a multiple linear regression model?

A)There exists homoskedasticity in the model.
B)The model can produce predicted probabilities that are less than zero and greater than one.
C) The model leads to the omitted variable bias as only two independent factors can be included in the model.
D) The model leads to an overestimation of the effect of independent variables on the dependent variable.

Question 18

The quarterly increase in an employee's salary depends on the rating of his work by his employer and several other factors as shown in the model below: Increase in salary= 0+ 0​Rating + other factors. The variable 'Rating' is a(n) _____.

A)dependent variable
B)ordinal variable
C) continuous variable
D) Poisson variable

Question 19

The following simple model is used to determine the annual savings of an individual on the basis of his annual income and education. Savings = β₀ + ₀ Edu + β₁Inc + u
The variable 'Edu' takes a value of 1 if the person is educated and the variable 'Inc' measures the income of the individual.
​
Refer to the model above. The benchmark group in this model is _____.

A)the group of educated people
B)the group of uneducated people
C) the group of individuals with a high income
D) the group of individuals with a low income

Question 20

A binary variable is a variable whose value changes with a change in the number of observations.

Question 21

The parameters in a linear probability model can be interpreted as measuring the change in the probability that y = 1 due to a one-unit increase in an explanatory variable.​

Question 22

The multiple linear regression model with a binary dependent variable is called the linear probability model.

Question 23

The dummy variable coefficient for a particular group represents the estimated difference in intercepts between that group and the base group.

Question 24

A dummy variable trap arises when a single dummy variable describes a given number of groups.

Question 25

A problem that often arises in policy and program evaluation is that individuals (or firms or cities) choose whether or not to participate in certain behaviors or programs.