Chapter 6

A change in the unit of measurement of the dependent variable in a model does not lead to a change in:

• the standard error of the regression.

• the sum of squared residuals of the regression.

• the goodness-of-fit of the regression.

• the confidence intervals of the regression.

Changing the unit of measurement of any independent variable, where log of the dependent variable appears in the regression:

• affects only the intercept coefficient.

• affects only the slope coefficient.

• affects both the slope and intercept coefficients.

• affects neither the slope nor the intercept coefficient.

A variable is standardized in the sample:

• by multiplying by its mean.

• by subtracting off its mean and multiplying by its standard deviation.

• by subtracting off its mean and dividing by its standard deviation.

• by multiplying by its standard deviation.

Standardized coefficients are also referred to as:

• beta coefficients.

• y coefficients.

• alpha coefficients.

• j coefficients.

If a regression equation has only one explanatory variable, say x1, its standardized coefficient must lie in the range:

• -2 to 0.

• -1 to 1.

• 0 to 1.

• 0 to 2.

In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment. log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI (0.13) (0.022) (0.017) Which of the following statements is then true?

• If gdp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant.

• If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.

• If gdp increases by 1%, bank credit increases by log(0.527)%, the level of FDI remaining constant.

• If bank credit increases by 1%, gdp increases by log(0.527)%, the level of FDI remaining constant.

In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment. log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI (0.13) (0.022) (0.017) Which of the following statements is then true?

• If FDI increases by 1%, gdp increases by approximately 22.2%, the amount of bank credit remaining constant.

• If FDI increases by 1%, gdp increases by approximately 26.5%, the amount of bank credit remaining constant.

• If FDI increases by 1%, gdp increases by approximately 24.8%, the amount of bank credit remaining constant.

• If FDI increases by 1%, gdp increases by approximately 52.7%, the amount of bank credit remaining constant.

Which of the following statements is true when the dependent variable, y > 0?

• Taking log of a variable often expands its range.

• Models using log(y) as the dependent variable will satisfy CLM assumptions more closely than models using the level of y.

• Taking log of variables make OLS estimates more sensitive to extreme values.

• Taking logarithmic form of variables make the slope coefficients more responsive to rescaling.

Which of the following correctly identifies a limitation of logarithmic transformation of variables?

• Taking log of variables make OLS estimates more sensitive to extreme values in comparison to variables taken in level.

• Logarithmic transformations cannot be used if a variable takes on zero or negative values.

• Logarithmic transformations of variables are likely to lead to heteroskedasticity.

• Taking log of a variable often expands its range which can cause inefficient estimates.

Which of the following models is used quite often to capture decreasing or increasing marginal effects of a variable?

• Models with logarithmic functions

• Models with quadratic functions

• Models with variables in level

• Models with interaction terms