# Econometrics deals with the measurement of economic relationships…

Econometrics deals with the measurement of economic relationships which are stochastic or random. The simplest form of economic relationships between two variables X and Y can be represented by:
Yi 0 1 X i U i
; were
0 and
1 are regression parameters and
U i the stochastic disturbance term
What are the reasons for the insertion of U-term in the model?
The following data refers to the demand for money (M) and the rate of interest (R) in for eight different economics:
M (In billions)
56 50
46
30
20
35
37
61

R%
6.3 4.6
5.1
7.3
8.9
5.3
6.7
3.5

Assuming a relationship M R U i , obtain the OLS estimators o and
Calculate the coefficient of determination for the data and interpret its value
If in a 9th economy the rate of interest is R=8.1, predict the demand for money(M) in this economy.

The following data refers to the price of a good ‘P’ and the quantity of the good supplied, ‘S’.
P
2
7
5
1
4
8
2
8

S
15
41
32
9
28
43
17
40

Estimate the linear regression line (S ) P
Estimate the standard errors of ˆ and ˆ
Test the hypothesis that price influences supply
Obtain a 95% confidence interval for
The following results have been obtained from a simple of 11 observations on the values of sales (Y) of a firm and the corresponding prices (X).
= 519.18
217.82
X 2 3,134,543
X iYi
1,296,836
Y 2 539,512
Estimate the regression line of sale on price and interpret the results
What is the part of the variation in sales which is not explained by the regression line?
Estimate the price elasticity of sales.

The following table includes the GNP(X) and the demand for food (Y) for a country over ten years period.
Year
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989

Y
6
7
8
10
8
9
10
9
11
10

X
50
52
55
59
57
58
62
65
68
70

Estimate the food function
Compute the coefficient of determination and find the explained and unexplained variation in the food expenditure.
Compute the standard error of the regression coefficients and conduct test of significance at the 5% level of significance.
A sample of 20 observation corresponding to the regression model Yi X i U i
gave the following data.

Estimate and
Calculate the variance of our estimates
Estimate the conditional mean of Y corresponding to a value of X fixed at X=10.
Suppose that a researcher estimates a consumptions function and obtains the following results:
C 15
0.81Yd
n 19
(3.1)
(18.7)
R 2 0.99
where C=Consumption, Yd=disposable income, and numbers in the parenthesis are the ‘t-ratios’
Test the significant of Yd statistically using t-ratios
Determine the estimated standard deviations of the parameter estimates
State and prove Guass-Markov theorem (BLUE,) B- hat is Best, Linear, unbiased estimator of the true beta B

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