WorksheetsExam 2
Total questions: 66
Worksheet time: 33mins
In a regression equation, one may measure the accuracy of the estimation by:
a. estimating the standard deviation of the errors of prediction
b. calculating the standard deviation of the errors of prediction
c. all of the above
d. calculating the standard error of the estimate
e. a and b only (b and d only)
In addition to prediction, one purpose of regression analysis is:
a. to measure the overall "fit" of the model to the sample observations
b. to test whether the slope parameter β is equal to some particular value
c. to test whether the slope parameter β is equal to zero
d. b and c
e. none of the above
A study of expenditures on food in cities resulting in the following equation:
Log E = 0.693 Log Y + 0.224 Log N
where E is Food Expenditures; Y is total expenditures on goods and services; and N is the size of the family. This evidence implies:
that a one-percent increase in family size increases food expenditures .224%.
that a one-percent increase in family size increases food expenditures .693%.
that as total expenditures on goods and services rises, food expenditures falls.
that a one-percent increase in total expenditures increases food expenditures 1%.
that as family size increases, food expenditures go down.
Appendix:
In regression analysis, the existence of a high degree of intercorrelation among some or all of the explanatory variables in the regression equation constitutes:
a simultaneous equation relationship
heteroscedasticity
multicollinearity
nonlinearities
autocorrelation
Appendix:In regression analysis, the existence of a significant pattern in successive values of the error term constitutes:
autocorrelation
nonlinearities
multicollinearity
a simultaneous equation relationship
heteroscedasticity
Appendix:
The Identification Problem in the development of a demand function is a result of:
the variance of the demand elasticity
the consistency of quantity demanded at any given point
the negative slope of the demand function
the simultaneous relationship between the demand and supply functions
none of the above
Appendix:When two or more "independent" variables are highly correlated, then we have:
the identification problem
complementary products
heteroscedasticity
autocorrelation
multicollinearity
Appendix:
When using a multiplicative power function (Y = a X1b1X2b2X3b3) to represent an economic relationship, estimates of the parameters (a, and the b's) using linear regression analysis can be obtained by first applying a ____ transformation to convert the function to a linear relationship.
reciprocal
double-logarithmic
cubic
semilogarithmic
polynomial
Caution must be exercised in using regression models for prediction when:
the value of the independent variable lies inside the range of observations from which the model was estimated
the value of the independent variable lies outside the range of observations from which the model was estimated
diminishing returns are present
the existence of saturation levels are present
none of the above
Consider the following linear demand function where Q D = quantity demanded, P = selling price, and Y = disposable income:
Q D = −36 −2.1P + .24Y
The coefficient of P ( i.e., −2.1) indicates that (all other things being held constant):
for a one percent increase in price, quantity demanded would decline by 2.1 percent
for a one unit increase in price, quantity demanded would decline by 2.1 units
for a one percent increase in price, quantity demanded would decline by 2.1 units
for a one unit increase in price, quantity demanded would decline by 2.1 percent
none of the above
Consider the following multiplicative demand function where Q D = quantity demanded, P = selling price, and Y = disposable income:
QD = 1.6P-1.5 Y.2
The coefficient of Y ( i.e., .2) indicates that (all other things being held constant):
for a one percent increase in disposable income, quantity demanded would increase by .2 percent
for a one unit increase in disposable income, quantity demanded would increase by .2 units
for a one percent increase in disposable income quantity demanded would increase by .2 units
for a one unit increase in disposable income, quantity demanded would increase by .2 percent
none of the above
Demand functions in the multiplicative form are most common for all of the following reasons except:
a. exponents of parameters are the elasticities of those variables
b. elasticities are constant over a range of data
c. marginal impact of a unit change in an individual variable is constant
d. c and d
e. ease of estimation of elasticities
Even though insignificant explanatory variables can raise the adjusted R 2 of a demand function, one should not interpret their effects on the regression when
planning for capital budgets
sales revenue reaches its peak
forecasting unit sales for operations planning
analyzing inventory relative to capacity requirements
testing marketing hypotheses about the determinants of demand
In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17 - 102.56 Price + 1.00 Income + 3.94Temp
Coefficients Standard Error t Stat
Intercept 159.17 94.16 1.69
Price -102.56 33.25 -3.08
Income 1.00 1.77 0.57
Temperature 3.94 0.82 4.83
R-Sq = 54.1% R-Sq(adj) = 51.0%
From the linear regression results in the cans case above, we know that:
As price rises for soda, people tend to drink less of it
Price is insignificant
All of the coefficients are significant
Temp is significant
Income is significant
In
testing whether each individual independent variables (Xs) in a
multiple regression equation is statistically significant in explaining
the dependent variable (Y), one uses the:
F-test
Durbin-Watson test
t-test
z-test
none of the above
In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0?
heteroscedasticity
agency problems
the identification problem
multicollinearity
autocorrelation
Novo Nordisk A/S, a Danish firm, sells insulin and other drugs worldwide. Activella, an estrogen and progestin hormone replacement therapy sold by Novo-Nordisk, is examined using 33 quarters of data
Y = -204 + .34X1 - .17X2
(17.0) (-1.71)
Where Y is quarterly sales of Activella, X1 is the Novo's advertising of the hormone therapy, and X2 is advertising of a similar product by Eli Lilly and Company, Novo-Nordisk's chief competitor. The parentheses contain t-values. Addition information is: Durbin-Watson = 1.9 and R2 = .89.
Using the data for Novo-Nordisk, which is correct?
Neither X1 nor X2 are statistically significant.
The Durbin-Watson statistic shows significant problems with autocorrelation
X1 is statistically significant but X2 is not statistically significant.
X1 is not statistically significant but X2 is statistically significant.
Both X1 and X2 are statistically significant.
One commonly used test in checking for the presence of autocorrelation when working with time series data is the ____.
F-test
Durbin-Watson test
t-test
z-test
none of the above
The assumptions underlying the simple linear regression model are:
a. associated with each value of X is a probability distribution
b. the disturbance term is assumed to be an independent random variable
c. the value of the dependent variable Y is postulated to be a random variable
d. a theoretical straight-line relationship exists between X and the expected value of Y
a through c
The
coefficient of determination measures the proportion of the variation
in the independent variable that is "explained" by the regression line.
True
False
The coefficient of determination ranges in value between 0.0 and 1.0.
True
False
The
constant or intercept term in a statistical demand study represents the
quantity demanded when all independent variables are equal to:
1.0
their minimum values
their average values
0.0
none of the above
All of the following are criteria used to select a forecasting technique EXCEPT:
the time required to complete the model
the complexity of the relationships being forecast
the cost associated with developing the forecasting model
all of these are criteria used to select a forecasting technique
the accuracy required of the forecasting model
An example of a time series data set is one for which the:
data would be collected for a given firm for several consecutive periods (e.g., months).
use of regression analysis would impossible in time series.
data would be collected for several different firms at a single point in time.
regression analysis comes from data randomly taken from different points in time.
data is created from a random number generation program.
Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example?
time-series forecasting techniques
survey techniques and opinion polling
econometric techniques
input-output analysis
barometric techniques
Emma uses a linear model to forecast quarterly same-store sales at the local Garden Center. The results of her multiple regression is:
Sales = 2,800 + 200•T - 350•D
where T goes from 1 to 16 for each quarter of the year from the first quarter of 2006 ('06I) through the fourth quarter of 2009 ('09 IV). D is a dummy variable which is 1 if sales are in the cold and dreary first quarter, and zero otherwise, because the months of January, February, and March generate few sales at the Garden Center. Use this model to estimate sales in a store for the first quarter of 2010 in the 17th month; that is: {2010 I}. Emma's forecast should be:
6,000
5,850
6,200
5,950
6,350
Examine the plot of data.
Sales
♥ ♥ ♥
♥ ♥ ♥ ♥ ♥
♥ ♥
Time
It is likely that the best forecasting method for this plot would be:
a semi-log regression model
a secular trend upward
a two-period moving average
a seasonal pattern that can be modeled using dummy variables or seasonal adjustments
a cubic functional form
For studying demand relationships for a proposed new product that no one has ever used before, what would be the best method to use?
ordinary least squares regression on historical data
market experiments, where the price is set differently in two markets
consumer surveys, where potential customers hear about the product and are asked their opinions
double log functional form regression model
all of the above are equally useful in this case
If two alternative economic models are offered, other things equal, we would
tend to pick the one with the lowest R2.
select the model that is the most expensive to estimate.
pick the model that was the most complex.
select the model that gave the most accurate forecasts
all of the above
In
the first-order exponential smoothing model, the new forecast is equal
to a weighted average of the old forecast and the actual value in the
most recent period.
false
true
Mr. Geppetto uses exponential smoothing to predict revenue in his wood carving business. He uses a weight of ω = .4 for the naïve forecast and (1- ω) = .6 for the past forecast. What revenue did he predict for March using the data below? Select closet answer.
MONTH REVENUE FORECAST
Nov 100 100
Dec 90 100
Jan 115 ----
Feb 110 ----
MARCH ? ?
101.7
102.1
104.7
103.2
106.2
Regarding forecasting, which of the following statements is NOT true?
a. Operations managers need sales forecasts to plan future production.
b. Financial managers need estimates of future sales revenues, disbursements and capital expenditures in order to plan effectively.
c. Forecasts of credit conditions are needed to plan the cash needs of the firm.
d. Public administrators and managers of NFP corporations need not forecast, since they need not make a profit.
e. Both c and d are false
Seasonal variations can be incorporated into a time-series model in a number of different ways, including:
a. ratio-to-trend method
b. a and b only (a and e only)
c. a, b, and c
d. root mean squared error method
e. use of dummy variables
Select the correct statement.
Qualitative forecasts give the direction of change.
Quantitative forecasts give the exact amount or exact percentage change.
Diffusion forecasts use the proportion of the forecasts that are positive to forecast up or down.
Surveys are a form of qualitative forecasting.
all of the above are correct.
Simplified trend models are generally appropriate for predicting the turning points in an economic time series.
True
False
Smoothing techniques are a form of ____ techniques which assume that there is an underlying pattern to be found in the historical values of a variable that is being forecast.
opinion polling
barometric forecasting
econometric forecasting
time-series forecasting
none of the above
Suppose a plot of sales data over time appears to follow an S-shape as illustrated below.
Sales ♦
♦
♦
♦
♦ ♦
Time
Which of the following is likely that the best forecasting functional form to use for sales data above?
A semi-log form as sales appear to be growing at a constant percentage rate, Ln Sales = a + bT
A quadratic shape in T and T-squared as variables, Sales = a + b T + cT2
A quadratic shape in T, using T-squared as another variable, Sales = a + b T + cT2.
A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT2 + d T3.
A linear trend, Sales = a + b T
The forecasting technique which attempts to forecast short-run changes and makes use of economic indicators known as leading, coincident or lagging indicators is known as:
time-series forecasting
barometric technique
econometric technique
opinion polling
judgment forecasting
The type of economic indicator that can best be used for business forecasting is the:
coincident indicator
optimism/pessimism indicator
leading indicator
current business inventory indicator
lagging indicator
The use of quarterly data to develop the forecasting model Y t = a +bY t−1 is an example of which forecasting technique?
Econometric methods based on an understanding of the underlying economic variables involved
Survey and opinion
Time-series forecasting
Barometric forecasting
Input-output analysis
The variation in an economic time-series which is caused by major expansions or contractions usuallyof greater than a year in duration is known as:
secular trend
cyclical variation
seasonal effect
unpredictable random factor
none of the above
Time-series forecasting models:
are useful whenever changes occur rapidly and wildly
are more effective in making long-run forecasts than short-run forecasts
are based solely on historical observations of the values of the variable being forecasted
attempt to explain the underlying causal relationships which produce the observed outcome
none of the above
Variations in a time-series forecast can be caused by:
a. secular trends
b. a and b only
c. seasonal effects
d. cyclical variations
e. a, b, and c (a, c, and d)
Which of the following barometric indicators would be the most helpful for forecasting future sales for an industry?
lagging economic indicators.
leading economic indicators.
coincident economic indicators.
wishful thinking
none of the above
An appreciation of the U.S. dollar has what impact on Harley-Davidson (HD), a U.S. manufacturer of motorcycles?
domestic sales of HD motorcycles increase and foreign sales of HD motorcycles decrease
only manufacturers who produce traded goods are affected
domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles increase
domestic sales of HD motorcycles increase and foreign sales of HD motorcycles increase
domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease
An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from
lower export industry productivity
higher anticipated costs of production in the U.S.
a change in the terms of trade
higher growth rates in the trading partner's economy
higher interest rates and higher inflation in the U.S.
Companies that reduce their margins on export products in the face of appreciation of their home currency may be motivated by a desire to
sacrifice market share abroad but build market share at home
increase production volume to realize learning curve advantages
sell foreign plants and equipment to lower their debt
reduce the costs of transportation
all of the above
European Union labor costs exceed U.S. and British labor costs primarily because
layoffs and plant closings are more restrictive in the U.S. and Britain
union wages are higher in the EU
labor-management relations are better in the EU
the amount of paid time off is higher in the EU
worker productivity is lower in the EU
If Janet Yellen, Chair of the Federal Reserve Board, begins to tighten monetary policy by raising US interest rates next year, what is the likely impact on the value of the dollar?
The Federal Reserve has no impact at all on interest rates.
The value of the dollar is not related to US interest rates.
The value of the dollar falls when US interest rates rise.
This is known as Purchasing Power Parity or PPP.
The value of the dollar rises when US interest rates rise.
If the British pound (£) appreciates by 10% against the dollar:
both the US importers from Britain and US exporters to Britain will be helped by the appreciating pound.
the US exporters will find it harder to sell to foreign customers in Britain.
the US importer of British goods will tend to find that their cost of goods rises, hurting its bottom line.
both US importers of British goods and exporters to Britain will be unaffected by changes in foreign exchange rates.
all of the above.
If the domestic prices for traded goods rises 5% in Japan and rises 7% the US over the same period, what would happened to the Yen/US dollar exchange rate? HINT: S 1/S 0 = (1+ π h) / (1+ π f) where S 0 is the direct quote of the yen at time 0, the current period.
a. The direct quote of the yen would remain the same.
b. Both a and d.
c. The direct quote of the yen ($/¥) falls, and the value of the dollar rises.
d. The direct quote of the yen ($/¥) rises, and the value of the dollar falls.
e. Purchasing power parity does not apply to inflation rates.
If the value of the U.S. dollar rises from €1.0 per dollar to €1.3 per dollar,
imports of automobiles from Germany will decline
sales by American manufacturers for the export markets will increase.
American inflation will increase
American exports to Germany will decrease
German exports of all traded goods will decline
In Chinese coastal provinces, brick housing for a fast expanding middle class is very comparable in size to housing in the U.S. for a family with median income of $51,000 because
the Chinese government builds much of the housing in China
median income per capita has risen in China to nearly equal median income in the U.S.
housing is an income inferior good
bricks, trade skill workers and construction labor are very cheap in China
construction companies have begun to migrate to the coastal provinces of China
In a recession, the trade balance often improves because
banks sell depressed assets
direct investment abroad declines
fewer households can afford luxury imports
the capital account exceeds the current account
service exports exceed manufactured good exports
In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will
increase consumer inflation.
lower the nominal interest rate
lower the trade-weighted exchange rate
increase the volume of trading in the foreign exchange market
raise the value of the currency
In the last twenty-five years, the Yen and German mark and now the Euro have
fluctuated widely against the dollar
appreciated against the dollar and then depreciated against the dollar
exchanged without restrictions
all of the above
none of the above
Purchasing power parity or PPP says the ratios composed of:
inflation rates explain the direction of exchange rates.
growth rates explain the direction of exchange rates.
interest rates explain the direction of exchange rates.
services explain the direction exchange rates.
public opinion polls explain the direction of exchange rates.
Regarding operating risk exposure, which of the following statements is NOT true?
a. they are more difficult to hedge than transaction risk exposures
b. they are easier to forecast than translation risk exposures
c. they necessitate more managerial attention and extensive analysis
d. only a and b
e. all of the above are true
Regarding short-range exchange rate movements, which of the following statements is NOT true?
a. determined by arbitrage activity
b. they may vary from hour to hour
c. are similar to those of the transaction demand determinants of long-term trends in exchange rates
d. both a and b are false
e. they may vary from week to week
The import of Apple iPads assembled in Shanghai at a $295 wholesale price ($213 cost and $82 profit margin) adds more than it should to the U.S. trade deficit with China because
the Chinese yuan is a managed currency
the iPad's popularity has triggered an enormous number of unit sales
wholesale prices only count in the trade statistics if final product prices are higher
as with foreign-assembled minivans, most of the subassembly components come from the U.S.
Chinese assembly labor represents only 47 % of the wholesale cost
The optimal currency area involves a trade-off of reducing transaction costs but the inability to use changes in exchange rates to help ailing regions. If the US, Canada, and Mexico had one single currency (the Peso-Dollar) we would tend to see all of the following EXCEPT:
An elimination of correlated macroeconomic shocks across the countries.
Lower transaction costs of trading within North America.
Even more intraregional trade of goods across the three countries.
A greater difficulty in helping Mexico as you can no longer deflate the Mexican peso.
Less migration of workers across the three countries.
The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time
lower the value of the currency in the country with the higher inflation rate
increase the speculative demand for the currency
reduce the competitive pressure on prices
increase exports
increase foreign aid
Trading partners should specialize in producing goods in accordance with comparative advantage, then trade and diversify in consumption because
free trade areas protect infant industries
out-of-pocket costs of production decline
more goods are available for consumption
manufacturers face diminishing returns
economies of scale are present
US and Canada can both grow wheat and can do mining. Use the following table to look for which country has a comparative advantage in mining. (HINT: Find the cost of mining in terms of wheat in each country.)
Absolute Cost in US Absolute Cost in Canada
Wheat $5 C$8
Mining $10 C$12
a. Canada has a comparative advantage in mining.
b. The US has a comparative advantage in mining.
c. No comparative advantage in mining exists for either nation.
d. We must first know the exchange rate to be able to answer this question.
e. Both a and b.
Using demand and supply curves for the Japanese yen based on the $/¥ price for yen, an increase in US INFLATION RATES would
Increase the demand and increase the supply of yen.
Have no impact on the demand or supply of the yen.
Increase the demand for yen and decrease the supply of the yen.
Decrease the demand for yen and decrease the supply of the yen.
Decrease both the supply and the demand of yen.
When a manufacturer's home currency appreciates substantially,
domestic sales decline
foreign sales decline
company-owned foreign plant and equipment will increase
margins often decline
all of the above
