## Introductory Econometrics A Modern Approach 5th Edition by Jeffrey M. Wooldridge – Test Bank

Chapter 6

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

a. the standard error of the regression.

b. the sum of squared residuals of the regression.

c. the goodness-of-fit of the regression.

d. the confidence intervals of the regression.

Answer: c

Difficulty: Moderate

Bloom’s: Knowledge

A-Head: Effects of Data Scaling on OLS Statistics

BUSPROG:

Feedback: Changing the unit of measurement of the dependent variable in a model does not lead to a change in the goodness of fit of the regression.

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

a. affects only the intercept coefficient.

b. affects only the slope coefficient.

c. affects both the slope and intercept coefficients.

d. affects neither the slope nor the intercept coefficient.

Answer: a

Difficulty: Moderate

Bloom’s: Comprehension

A-Head: Effects of Data Scaling on OLS Statistics

BUSPROG:

Feedback: Changing the unit of measurement of any independent variable, where log of the independent variable appears in the regression only affects the intercept. This follows from the property log(ab) = log(a) + log(b).

3. A variable is standardized in the sample:

a. by multiplying by its mean.

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

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

d. by multiplying by its standard deviation.

Answer: c

Difficulty: Moderate

Bloom’s: Knowledge

A-Head: Effects of Data Scaling on OLS Statistics

BUSPROG:

Feedback: A variable is standardized in the sample by subtracting off its mean and dividing by its standard deviation.

4. Standardized coefficients are also referred to as:

a. beta coefficients.

b. y coefficients.

c. alpha coefficients.

d. j coefficients.

Answer: a

Difficulty: Easy

Bloom’s: Knowledge

A-Head: Effects of Data Scaling on OLS Statistics

BUSPROG:

Feedback: Standardized coefficients are also referred to as beta coefficients.

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

a. -2 to 0.

b. -1 to 1.

c. 0 to 1.

d. 0 to 2.

Answer: b

Difficulty: Easy

Bloom’s: Comprehension

A-Head: Effects of Data Scaling on OLS Statistics

BUSPROG:

Feedback: If a regression equation has only one explanatory variable, say x1, its standardized coefficient is the correlation coefficient between the dependent variable and x1, and must lie in the range -1 to 1.

6. 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?

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

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

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

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

Answer: b

Difficulty: Moderate

Bloom’s: Application

A-Head: More on Functional Form

BUSPROG:

Feedback: The equation suggests that if bank credit increases by 1%, gdp increases by 0.527%. This is known from the value of the coefficient associated with bank credit.

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