Question

7. In the following equation, gdp refers to gross domestic product, BC refers to bank credit, and FDI refers to foreign direct investment In(odp) = 2.65 +0.527 In (BC) +0.222FDI. Which of the following is true? a. If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant b. If gdp increases by 1%, bank credit increases by In(0.527)%, the level of FDI remaining constant c. If ydp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant d. If bank credit increases by 1%. gdp increases by In(0.527)%, the level of FDI remaining constant 8. Which of the following models is used quite often to capture decreasing or increasing marginal effects of a variable? a. Models with logarithmic functions b. Models with quadratic functions c. Models with variables in level d. Models with interaction terms 9. True or False: Assuming Var (81) > 0, the inconsistency in 3, is negative if x, and the error term are positively related a. True b. False 10. 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 1

Answer-7 The correct option is a.) If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.

The interpretation of log-log regression model goes like this:

%Δy=β1%Δx

“if we change x by one percent,
we’d expect y to change by β1 percent”

Answer-8 The correct option is b.) models with quadratic functions

Answer-9 The correct option is b.) False

It is false when assuming var (x1) > 0, the inconsistency in beta 1 is negative if x1 and the error term are positively related.

Answer-10 The correct option is c.) the goodness of fit of the regression