File: Ch01, Chapter 1, An Introduction to Econometrics
Multiple Choice
1. Which of the following is NOT generally included in the study of econometrics?
a. Using economic data to estimate relationships.
b. Testing economic hypotheses.
c. Predicting economic outcomes.
d. Developing new economic relationships.
Ans: d
Level: Easy – Knowledge
AACSB: Reflective Thinking
Section: 1.1
2. Which of the following questions is a type that tools of econometrics are meant to answer?
a. If goods A and B are substitutes and the price of good A increases by $0.50, by how much will the sales of good B change by?
b. If goods A and B are substitutes and the price of good A increases, how will this affect the demand for good B?
c. If an income increase causes the sales of good A to fall, everything else held constant, what type of good is good A?
d. Everything else the same, would the price of good A be higher in a competitive industry or a monopolistic industry?
Ans: a
Level: Medium – Application
AACSA: Analytic
Section: 1.1
3. Consider the model
where 
is quantity demanded of a particular product per month, 
is the price of the product, 
is the price of substitutes, 
is the price of complements, and 
is monthly income. This equation represents _____.
a. a non-linear model
b. an economic model
c. an econometric model
d. an interval forecast
Ans: b
Level: Easy – Comprehension
AACSB: Reflective Thinking
Section: 1.2
4. Economic theory provides a basis for which variables are relevant and should be included in an econometric model. But econometrics provides tools to estimate _____ which tells us _____.
a. a model; the functional form that should be used
b. causality; why it happens that way
c. a parameter; how much or to what degree things change
d. variables; the probability of a specific outcome
Ans: c
Level: Medium – Analysis
AACSB: Analytic
Section: 1.2
5. Why is a random error term included in an econometric model?
a. Because many economic models have not been well developed yet and need to allow for inaccuracies.
b. Because some people are irrational.
c. Because there is intrinsic uncertainty in any economic activity due to individual decision making.
d. Because most estimating techniques are not well suited to work with a deterministic model.
Ans: c
Level: Medium – Analysis
AACSB: Analytic
Section: 1.3
6. Refer to the equation
where 
is annual quantity supplied,
Multiple Choice
1. Which of the following is NOT generally included in the study of econometrics?
a. Using economic data to estimate relationships.
b. Testing economic hypotheses.
c. Predicting economic outcomes.
d. Developing new economic relationships.
Ans: d
Level: Easy – Knowledge
AACSB: Reflective Thinking
Section: 1.1
2. Which of the following questions is a type that tools of econometrics are meant to answer?
a. If goods A and B are substitutes and the price of good A increases by $0.50, by how much will the sales of good B change by?
b. If goods A and B are substitutes and the price of good A increases, how will this affect the demand for good B?
c. If an income increase causes the sales of good A to fall, everything else held constant, what type of good is good A?
d. Everything else the same, would the price of good A be higher in a competitive industry or a monopolistic industry?
Ans: a
Level: Medium – Application
AACSA: Analytic
Section: 1.1
3. Consider the model
where is quantity demanded of a particular product per month, is the price of the product, is the price of substitutes, is the price of complements, and is monthly income. This equation represents _____.a. a non-linear model
b. an economic model
c. an econometric model
d. an interval forecast
Ans: b
Level: Easy – Comprehension
AACSB: Reflective Thinking
Section: 1.2
4. Economic theory provides a basis for which variables are relevant and should be included in an econometric model. But econometrics provides tools to estimate _____ which tells us _____.
a. a model; the functional form that should be used
b. causality; why it happens that way
c. a parameter; how much or to what degree things change
d. variables; the probability of a specific outcome
Ans: c
Level: Medium – Analysis
AACSB: Analytic
Section: 1.2
5. Why is a random error term included in an econometric model?
a. Because many economic models have not been well developed yet and need to allow for inaccuracies.
b. Because some people are irrational.
c. Because there is intrinsic uncertainty in any economic activity due to individual decision making.
d. Because most estimating techniques are not well suited to work with a deterministic model.
Ans: c
Level: Medium – Analysis
AACSB: Analytic
Section: 1.3
6. Refer to the equation
where is annual quantity supplied,