1. In the equation, is a(n) _____.

a. independent variable
b. dependent variable
c. slope parameter
d. intercept parameter
ANSWER: c
RATIONALE:
FEEDBACK: In the equation, is a slope parameter.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: Motivation for Multiple Regression
KEYWORDS: Bloom’s: Knowledge

2. Consider the following regression equation: . What does imply?

a.
measures the ceteris paribus effect of on .
b.
measures the ceteris paribus effect of on .
c.
measures the ceteris paribus effect of on .
d.
measures the ceteris paribus effect of on .
ANSWER: c
RATIONALE:
FEEDBACK: measures the ceteris paribus effect of on .
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: Motivation for Multiple Regression
KEYWORDS: Bloom’s: Knowledge

3. In econometrics, the general partialling out result is usually called the _____.
a. Gauss-Markov assumption
b. Best linear unbiased estimator
c. Frisch-Waugh theorem
d. Gauss-Markov theorem
ANSWER: c
RATIONALE: FEEDBACK: In econometrics, the general partialling out result is usually called the Frisch-
Waugh theorem.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARD United States - BUSPROG: Analytic
S:
TOPICS: Mechanics and Interpretation of Ordinary Least Squares
KEYWORDS: Bloom's: Knowledge

4. If the explained sum of squares is 35 and the total sum of squares is 49, what is the residual sum of squares?
Cengage Learning Testing, Powered by Cognero Page 1
 a. 10
b. 12
c. 18
d. 14
ANSWER: d
RATIONALE: FEEDBACK: The residual sum of squares is obtained by subtracting the explained sum of squares
from the total sum of squares, or 49-35=14.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic - BUSPROG: Analytic
ARDS:
TOPICS: Mechanics and Interpretation of Ordinary Least Squares
KEYWORDS: Bloom’s: Application

2
5. Which of the following is true of R ?
a. R2 is also called the standard error of regression.
b. A low R2 indicates that the Ordinary Least Squares line fits the data well.
c. R2 usually decreases with an increase in the number of independent variables in a regression.
d. R2 shows what percentage of the total variation in the dependent variable, Y, is explained by the explanatory
variables.
ANSWER: d
RATIONALE: 2
FEEDBACK: R shows what percentage of the total variation in Y is explained by the
explanatory variables.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARD United States - BUSPROG: Analytic
S:
TOPICS: Mechanics and Interpretation of Ordinary Least Squares
KEYWORDS: Bloom’s: Knowledge

2
6. The value of R always _____.
a. lies below 0
b. lies above 1
c. lies between 0 and 1
d. lies between 1 and 1.5
ANSWER: c
RATIONALE: 2
FEEDBACK: By definition, the value of R always lies between 0 and 1.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: Mechanics and Interpretation of Ordinary Least Squares
KEYWORDS: Bloom’s: Knowledge

7. If an independent variable in a multiple linear regression model is an exact linear combination of other independent
variables, the model suffers from the problem of _____.
Cengage Learning Testing, Powered by Cognero Page 2
 a. perfect collinearity
b. homoskedasticity
c. heteroskedasticty
d. omitted variable bias
ANSWER: a
RATIONALE: FEEDBACK: If an independent variable in a multiple linear regression model is an exact linear
combination of other independent variables, the model suffers from the problem of perfect collinearity.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

8. The assumption that there are no exact linear relationships among the independent variables in a multiple linear
regression model fails if _____, where n is the sample size and k is the number of parameters.
a. n>2
b. n=k+1
c. n>k
d. n<k+1
ANSWER: d
RATIONALE: FEEDBACK: The assumption of no perfect collinearity among independent variables fails if n
< k + 1.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS United States - BUSPROG: Analytic
:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

9. Exclusion of a relevant variable from a multiple linear regression model leads to the problem of _____.
a. misspecification of the model
b. multicollinearity
c. perfect collinearity
d. homoskedasticity
ANSWER: a
RATIONALE: FEEDBACK: Exclusion of a relevant variable from a multiple linear regression model leads to the
problem of misspecification of the model.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic
ARDS:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

10. Suppose the variable x2 has been omitted from the following regression equation, is
Cengage Learning Testing, Powered by Cognero Page 3
the estimator obtained when is omitted from the equation. The bias in is positive if _____.
a.
>0 and and are positively correlated
b.
<0 and and are positively correlated
c.
>0 and and are negatively correlated
d.
= 0 and and are negatively correlated
ANSWER: a
RATIONALE:
FEEDBACK: When the variable x2 is omitted from the regression, the bias in is positive if >0
and and are positively correlated.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic
ARDS:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

11. Suppose the variable has been omitted from the following regression equation,
is the estimator obtained when is omitted from the equation. The bias in is negative if _____.
a.
>0 and and are positively correlated
b.
<0 and and are positively correlated
c.
=0 and and are negatively correlated
d.
=0 and and are negatively correlated
ANSWER: b
RATIONALE:
FEEDBACK: When the variable x2 is omitted from the regression, the bias in is negative if <0
and and are positively correlated.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic
ARDS:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

12. Suppose the variable has been omitted from the following regression equation,
is the estimator obtained when is omitted from the equation. If is said to _____.
a. have an upward bias
b. have a downward bias
c. be unbiased
d. be biased toward zero
Cengage Learning Testing, Powered by Cognero Page 4
ANSWER: a
RATIONALE:
FEEDBACK: When the variable is omitted from the following regression equation,
has an upward bias if E( ) >â1.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

13. High (but not perfect) correlation between two or more independent variables is called _____.
a. heteroskedasticty
b. homoskedasticty
c. multicollinearity
d. micronumerosity
ANSWER: c
RATIONALE: FEEDBACK: High, but not perfect, correlation between two or more independent variables is
called multicollinearity.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDAR United States - BUSPROG: Analytic
DS:
TOPICS: The Variance of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

14. The term _____ refers to the problem of small sample size.
a. micronumerosity
b. multicollinearity
c. homoskedasticity
d. heteroskedasticity
ANSWER: a
RATIONALE: FEEDBACK: The term micronumerosity refers to the problem of small sample size.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: The Variance of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

15. ignores the error variance increase because it treats both regressors as _____.
a. random
b. nonrandom
c. independent
d. dependent
Cengage Learning Testing, Powered by Cognero Page 5
ANSWER: b
RATIONALE:

FEEDBACK: ignores the error variance increase because it treats both

regressors as nonrandom.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDA United States - BUSPROG: Analytic
RDS:
TOPICS: The Variance of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

16. Find the degrees of freedom in a regression model that has 10 observations and 7 independent variables.
a. 17
b. 2
c. 3
d. 4
ANSWER: b
RATIONALE: FEEDBACK: The degrees of freedom in a regression model is computed by subtracting the number of
parameters from the number of observations in a regression model. Since, the number of parameters is
one more than the number of independent variables, the degrees of freedom in this case is 10-(7 + 1) =
2.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic - BUSPROG: Analytic
DARDS:
TOPICS: The Variance of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

17. The Gauss-Markov theorem will not hold if _____.

a. the error term has the same variance given any values of the explanatory variables
b. the error term has an expected value of zero given any values of the independent variables
c. the independent variables have exact linear relationships among them
d. the regression model relies on the method of random sampling for collection of data
ANSWER: c
RATIONALE: FEEDBACK: The Gauss-Markov theorem will not hold if the independent variables have exact
linear relationships among them.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDA United States - BUSPROG: Analytic
RDS:
TOPICS: Efficiency of OLS: The Gauss-Markov Theorem
KEYWORDS: Bloom’s: Knowledge

18. Which of the following is true of BLUE?

a. It is a rule that can be applied to any one value of the data to produce an estimate.

Cengage Learning Testing, Powered by Cognero Page 6

 b.
An estimator is an unbiased estimator of if for any .
c. An estimator is linear if and only if it can be expressed as a linear function of the data on the
dependent variable.
d. It is the best linear uniform estimator.
ANSWER: c
RATIONALE: FEEDBACK: An estimator is linear if, and only if, it can be expressed as a linear function of
the data on the dependent variable.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic
ARDS:
TOPICS: Efficiency of OLS: The Gauss-Markov Theorem
KEYWORDS: Bloom's: Knowledge

19. The term “linear” in a multiple linear regression model means that the equation is linear in parameters.
a. True
b. False
ANSWER: True
RATIONALE: FEEDBACK: The term “linear” in a multiple linear regression model means that the equation is
linear in parameters.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDAR United States - BUSPROG: Analytic
DS:
TOPICS: Motivation for Multiple Regression
KEYWORDS: Bloom’s: Knowledge

20. The key assumption for the general multiple regression model is that all factors in the unobserved error term be
correlated with the explanatory variables.
a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: The key assumption of the general multiple regression model is that all factors in the
unobserved error term be uncorrelated with the explanatory variables.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Motivation for Multiple Regression
KEYWORDS: Bloom’s: Knowledge

2
21. The coefficient of determination (R ) decreases when an independent variable is added to a multiple regression model.
a. True
b. False
ANSWER: False

Cengage Learning Testing, Powered by Cognero Page 7

RATIONALE: 2
FEEDBACK: The coefficient of determination (R ) never decreases when an independent variable is
added to a multiple regression model.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic
ARDS:
TOPICS: Mechanics and Interpretation of Ordinary Least Squares
KEYWORDS: Bloom’s: Knowledge

22. If two regressions use different sets of observations, then we can tell how the R-squareds will compare, even
if one regression uses a subset of regressors.
a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: If two regressions use different sets of observations, then we cannot tell how the
R-squareds will compare, even if one regression uses a subset of regressors.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Mechanics and Interpretation of Ordinary Least Squares
KEYWORDS: Bloom’s: Knowledge

23. An explanatory variable is said to be exogenous if it is correlated with the error term.
a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: An explanatory variable is said to be endogenous if it is correlated with the error
term.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS United States - BUSPROG: Analytic
:
TOPICS: The Expected Value of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

24. A larger error variance makes it difficult to estimate the partial effect of any of the independent variables on the
dependent variable.
a. True
b. False
ANSWER: True
RATIONALE: FEEDBACK: A larger error variance makes it difficult to estimate the partial effect of any of the
independent variables on the dependent variable.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
Cengage Learning Testing, Powered by Cognero Page 8
TOPICS: The Variance of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

25. When one randomly samples from a population, the total sample variation in xj decreases without bound as
the sample size increases.
a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: When one randomly samples from a population, the total sample variation in xj
increases without bound as the sample size increases.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: The Variance of the OLS Estimators
KEYWORDS: Bloom’s: Knowledge

Cengage Learning Testing, Powered by Cognero Page 9