Question 1

The instrumental variables in the two stage least squares estimation method consists of endogenous variables appearing in either equation.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following correctly identifies a characteristic of structural equations?

Accepted Answer

A)  A structural equation should contain equal number of dependent and independent variables.
B)  A structural equation should contain equal number of endogenous and exogenous variables.
C)  A structural equation should have a behavioral,ceteris paribus interpretation on its own.
D)  A structural equation should not contain structural errors.E) C) and D)
F) All of the above C

Question 3

The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Qi = α1Pi + β1zi1 + ui1
Qi = α2Pi + β2zi2 + ui2
Which of the following are the endogenous variables in this model?

Accepted Answer

A)  Pi,zi1,and zi2
B)  Pi andQi
C)  zi1,and zi2
D)  ui1 and ui2E) None of the above
F) A) and D)

Question 4

Which of the following statements is true?

Accepted Answer

A)  The use of 2SLS is applicable to simultaneous equations model with at most two equations.
B)  Identification of simultaneous equations with three or more equations is based on matrix algebra.
C)  2SLS method used in the estimation of simultaneous equations is an example of a system estimation method.
D)  The maximum number of equations permissible for a simultaneous equations model is four.E) A) and B)
F) C) and D)

Question 5

OLS is biased and inconsistent when applied to a structural equation in a simultaneous equations system.

Accepted Answer

A) True 
 B)False

Question 6

The following equations represent a simultaneous equations model: K1 = α1K2 + β1z1 + u1
K2 = α2K1 + β2z2 + u2
The reduced form equation for K2 will express:

Accepted Answer

A)  K1 as a function of K2 and the error terms.
B)  K2 as a function of K1 and the error terms.
C)  K2 as a function of exogenous variables and the error terms.
D)  K1 as a function of exogenous variables,the error terms,and K2.E) B) and D)
F) C) and D)

Question 7

An equation in the simultaneous equations model satisfies the order condition for identification if:

Accepted Answer

A)  the number of excluded endogenous variables from the equation is at most as large as the number of right-hand side exogenous variables.
B)  the number of excluded endogenous variables from the equation is at least as large as the number of right-hand side exogenous variables.
C)  the number of excluded exogenous variables from the equation is at most as large as the number of right-hand side endogenous variables.
D)  the number of excluded exogenous variables from the equation is at least as large as the number of right-hand side endogenous variables.E) B) and C)
F) None of the above

Question 8

Which of the following statements is true?

Accepted Answer

A)  White test can be used to efficiently determine the presence of serial correlation in panel data.
B)  The t statistic is not an efficient test to determine serial correlation in panel data.
C)  Instrumental variables for both endogenous and exogenous variables are required for estimating simultaneous equation models concerned with panel data.
D)  2SLS should be applied to simultaneous equation models with panel data only after removing the unobserved effects from the equations of interest.E) A) and D)
F) B) and C)

Question 9

A predetermined variable in a simultaneous equations model is:

Accepted Answer

A)  a constant.
B)  the error term.
C)  a lagged variable.
D)  an omitted variable.E) A) and C)
F) A) and D) C

Question 10

Which of the following correctly highlights a limitation of applying simultaneous equation models to time series data?

Accepted Answer

A)  Most time series have variables with a unit root and 2SLS is complicated when applied to equations with such variables.
B)  2SLS estimates are inefficient when applied to variables that are not in their levels but in first differences.
C)  It is difficult to form simultaneous equations which satisfy the rank and order conditions using time series data.
D)  The problem of serial correlation greatly limits the efficiency of simultaneous equation models and leads to inefficient estimations.E) A) and B)
F) A) and C)

Question 11

A simultaneous equations model is suitable whenever two variables are determined simultaneously.

Accepted Answer

A) True 
 B)False

Question 12

If a structured model contains a time trend-which may capture exogenous,trending factors that are not directly modeled-then the trend acts as its own instrumental variable.

Accepted Answer

A) True 
 B)False

Question 13

Refer to the simultaneous equations model above.The reduced form error from the reduced form equation for K2 will be a:

Accepted Answer

A)  quadratic function of u1 and u2?,and correlated with z1? and z2.
B)  quadratic function of u1 and u2?,and uncorrelated with z1? and z2.
C)  linear function of u1 and u2?,and correlated with z1? and z2.
D)  linear function of u1 and u2?,and uncorrelated with z1? and z2.E) A) and B)
F) A) and D)

Question 14

An alternative to using simultaneous equation models with panel data is:

Accepted Answer

A)  to use OLS estimates after first differencing the data.
B)  to use fixed effects transformation on the equations and then apply 2SLS.
C)  to convert the equations into reduced form and then apply feasible generalized least squares.
D)  to convert the equations into reduced form and then apply OLS.E) All of the above
F) C) and D)

Question 15

Exclusion restrictions are said to be imposed in a two-equation simultaneous equations model if it is assumed that:

Accepted Answer

A)  certain exogenous variables do not appear in the first equation and others are absent from the second equation.
B)  certain endogenous variables do not appear in the first equation and others are absent from the second equation.
C)  the error terms in each equation is uncorrelated with the exogenous variables.
D)  the error terms in each equation is correlated with the exogenous variables.E) C) and D)
F) B) and D) A

Question 16

The rank condition for identification of a structural equation states that the first equation in a two-equation simultaneous equations model is identified if,and only if:

Accepted Answer

A)  the first equation contains at least one exogenous variable (with a nonzero coefficient) that is excluded from the second equation.
B)  the first equation contains at least two exogenous variables (with a nonzero coefficient) that are excluded from the second equation.
C)  the second equation contains at least one exogenous variable (with a nonzero coefficient) that is excluded from the first equation.
D)  the second equation contains at least two exogenous variables (with a nonzero coefficient) that are excluded from the first equation.E) C) and D)
F) B) and D)

Question 17

Which of the following is a method which can be used for estimation in simultaneous equations models?

Accepted Answer

A)  Feasible generalized least squares estimation
B)  Prais-Winsten transformation
C)  Cochrane-Orcutt transformation
D)  Two stage least squares estimationE) A) and B)
F) A) and C)

Question 18

The order condition is a necessary and sufficient condition for identification of an equation in a simultaneous equations model.

Accepted Answer

A) True 
 B)False

Question 19

In econometrics,simultaneity arises when:

Accepted Answer

A)  strictly exogenous explanatory variables determine the dependent variable through a step-by-step process.
B)  the error term is correlated with both the dependent variable and explanatory variables.
C)  one or more of the explanatory variables is jointly determined with the dependent variable.
D)  both serial correlation and heteroskedasticity are present in an hypothesized model.E) C) and D)
F) A) and C)

Question 20

The following equations represent a simultaneous equations model: K1 = α1K2 + β1z1 + u1
K2 = α2K1 + β2z2 + u2
OLS will suffer from simultaneity bias if:

Accepted Answer

A)  u1is correlated with z1.
B)  z1 is correlated with z2.
C)  K2 is correlated with u1.
D)  K1? is correlated with u1.E) A) and D)
F) C) and D)

Exam 16: Simultaneous Equations Models

The instrumental variables in the two stage least squares estimation method consists of endogenous variables appearing in either equation.

Correct AnswerverifiedShow Answer

Which of the following correctly identifies a characteristic of structural equations?

Correct AnswerverifiedC

The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Qi = α1Pi + β1zi1 + ui1 Qi = α2Pi + β2zi2 + ui2 Which of the following are the endogenous variables in this model?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

OLS is biased and inconsistent when applied to a structural equation in a simultaneous equations system.

Correct AnswerverifiedShow Answer

The following equations represent a simultaneous equations model: K1 = α1K2 + β1z1 + u1 K2 = α2K1 + β2z2 + u2 The reduced form equation for K2 will express:

Correct AnswerverifiedShow Answer

An equation in the simultaneous equations model satisfies the order condition for identification if:

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

A predetermined variable in a simultaneous equations model is:

Correct AnswerverifiedC

Which of the following correctly highlights a limitation of applying simultaneous equation models to time series data?

Correct AnswerverifiedShow Answer

A simultaneous equations model is suitable whenever two variables are determined simultaneously.

Correct AnswerverifiedShow Answer

If a structured model contains a time trend-which may capture exogenous,trending factors that are not directly modeled-then the trend acts as its own instrumental variable.

Correct AnswerverifiedShow Answer

Refer to the simultaneous equations model above.The reduced form error from the reduced form equation for K2 will be a:

Correct AnswerverifiedShow Answer

An alternative to using simultaneous equation models with panel data is:

Correct AnswerverifiedShow Answer

Exclusion restrictions are said to be imposed in a two-equation simultaneous equations model if it is assumed that:

Correct AnswerverifiedA

The rank condition for identification of a structural equation states that the first equation in a two-equation simultaneous equations model is identified if,and only if:

Correct AnswerverifiedShow Answer

Which of the following is a method which can be used for estimation in simultaneous equations models?

Correct AnswerverifiedShow Answer

The order condition is a necessary and sufficient condition for identification of an equation in a simultaneous equations model.

Correct AnswerverifiedShow Answer

In econometrics,simultaneity arises when:

Correct AnswerverifiedShow Answer

The following equations represent a simultaneous equations model: K1 = α1K2 + β1z1 + u1 K2 = α2K1 + β2z2 + u2 OLS will suffer from simultaneity bias if:

Correct AnswerverifiedShow Answer

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C

The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Q_i = α₁P_i+ β₁z_i₁ + u_i1 Q_i= α₂P_i+ β₂z_i₂ + u_i₂ Which of the following are the endogenous variables in this model?

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The following equations represent a simultaneous equations model: K₁ = α₁K₂+ β₁z₁ + u₁ K₂= α₂K₁+ β₂z₂ + u₂ The reduced form equation for K₂ will express:

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C

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Refer to the simultaneous equations model above.The reduced form error from the reduced form equation for K₂ will be a:

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A

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The following equations represent a simultaneous equations model: K₁ = α₁K₂+ β₁z₁ + u₁ K₂= α₂K₁+ β₂z₂ + u₂ OLS will suffer from simultaneity bias if:

Correct Answer
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