Sumera Nawaz ECONOMICS   -   Econometrics

How to address heteroskedasticity in a regression model?

Heteroskedasticity can be addressed by applying robust standard errors, which provide consistent standard error estimates even when heteroskedasticity is present. This adjustment ensures that inference drawn from the regression coefficients remains valid despite the presence of non-constant variance in the error terms.
Sumera Nawaz ECONOMICS   -   Econometrics

Why is multicollinearity a problem in multiple regression analysis?

Multicollinearity is a problem because it causes the standard errors of the regression coefficients to be inflated, which can lead to less precise estimates and make it difficult to determine the individual effect of each explanatory variable. This reduces the reliability of hypothesis tests.
Sumera Nawaz ECONOMICS   -   Econometrics

Which test is commonly used to detect autocorrelation in the residuals of a regression model?

The Durbin-Watson test is commonly used to detect autocorrelation in the residuals of a regression model. It tests the null hypothesis that there is no first-order autocorrelation in the residuals, with values near 2 indicating no autocorrelation and values approaching 0 or 4 indicating positive or negative autocorrelation, respectively.
Sumera Nawaz ECONOMICS   -   Econometrics

When is the use of a fixed-effects model preferable to a random-effects model in panel data analysis?

The fixed-effects model is preferable when the individual effects are correlated with the explanatory variables. This model accounts for unobserved heterogeneity by allowing each cross-sectional unit to have its own intercept, thus controlling for time-invariant characteristics.
Sumera Nawaz ECONOMICS   -   Econometrics

What is the primary purpose of using Instrumental Variables (IV) in econometrics?

Instrumental Variables (IV) are used in econometrics to address endogeneity problems, which occur when an explanatory variable is correlated with the error term. IVs help in obtaining consistent estimates by providing a source of variation that is correlated with the endogenous explanatory variable but uncorrelated with the error term.
Sumera Nawaz ECONOMICS   -   Macroeconomics

If a country's Gross Domestic Product (GDP) is $800 billion and its Gross National Product (GNP) is $750 billion, what is the value of net factor income from abroad (NFIA)?

GNP - GDP = NFIA, so $750 billion - $800 billion = -$50 billion. Since NFIA is negative, it means the country has a net outflow of income to the rest of the world, so the absolute value of NFIA is $50 billion.
Sumera Nawaz ECONOMICS   -   Macroeconomics

In the circular flow of income, which sector consists of households?

The household sector represents individuals or households who consume goods and services and provide factors of production to firms.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following is NOT a limitation of Gross Domestic Product (GDP) as a measure of economic welfare?

GDP can be adjusted for inflation to calculate real GDP, addressing this limitation.
Sumera Nawaz ECONOMICS   -   Macroeconomics

Which of the following is an example of a transfer payment?

Transfer payments are payments made by the government to individuals or households without the expectation of goods or services in return.
Sumera Nawaz ECONOMICS   -   Macroeconomics

If a country's Gross Domestic Product (GDP) is $500 billion and its population is 100 million, what is the country's GDP per capita?

GDP per capita is calculated by dividing GDP by the population, so $500 billion / 100 million = $5,000.

ECONOMICS