Basic Econometrics — DU B.A. (Hons.) Economics Previous Year Question Papers

3. The question paper consists of six questions. Answer any five questions. 6. Statistical tables are attached for your reference. Qs 1 (a) Define multicollinearity with examples. What are the consequences of severe multicollinearity for the OLS estimates? How can you detect multicollinearity in a regression model, and what remedial measures do you suggest addressing it? b) Write any six assumptions of Classical Linear Regression Model (CLRM). c) Given the data find slope and intercept: Qs 2 a) In a simple linear regression model predicting house prices (Y) based on square footage (X), you obtain the residuals and perform a Jarque-Bera (JB) test for normality. The test results are: 1. State the null and alternative hypotheses for the Jarque-Bera test. 2. Interpret the JB statistic and p-value in this context. b) An economist wants to study the relationship between GDP growth (Y) and investment in infrastructure (X) in the economy. The estimated model is: Interpret the coefficients and calculate the approximate percentage change in GDP growth for a 1-unit increase in infrastructure investment (X). c) A researcher is studying the effect of education level on monthly income. She collects data and creates dummy variables for four education categories: Primary, Secondary, Graduate, and Postgraduate. She includes all four dummy variables along with an intercept term in her OLS regression model. What problem arises when all four dummy variables are included in the model alongside the intercept? Explain the underlying cause. Qs 3 (a) The relationship between infant mortality rate (IMR) and the expenditure on immunization programmes for children (IMMUN) in lakhs of rupees for 63 districts of India is postulated by the following two alternate models: The R² for Model A and Model B are 0.6152 and 0.8254 respectively. Use a suitable test at 5% significance level to decide which model you would prefer (restricted or unrestricted). State the null and alternate hypothesis clearly. b) What is the problem with using R²? How does adjusted R² overcome this problem? (c) Using data on sales of cameras (SALES) and its price (PRICE in thousands of rupees) for 17 brands, the effect of price on sales is given by: Interpret the slope coefficient. Construct a 95% confidence interval for the slope coefficient. Also, interpret R². b) Find slope and elasticity for the following model: (c) Using data on labor and capital for 123 firms, the Cobb-Douglas production function is estimated: Standard errors: (0.008) (0.325) (0.1008) Name the functional form of the regression model. Interpret the slope coefficients. What is the nature of returns to scale exhibited? Qs 5 (a) In the regression model, Can we uniquely estimate the original parameters A, A, and A? b) Consider a cross-sectional model of petroleum consumption: where pcons = petroleum consumption in the ith state reg = motor vehicle registrations in the ith state price = price of petrol in the ith state