1.

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: c
RATIONALE: FEEDBACK: Changing the unit of measurement of the dependent variable in a model does not lead to
a change in the goodness of fit of the regression.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Effects of Data Scaling on OLS Statistics
KEYWORDS: Bloom’s: Knowledge

2. Changing the unit of measurement of any independent variable, where log of the dependent variable appears in the
regression:
a. affects only the intercept coefficient.
b. affects only the slope coefficient.
c. affects both the slope and intercept coefficients.
d. affects neither the slope nor the intercept coefficient.
ANSWER: a
RATIONALE: FEEDBACK: Changing the unit of measurement of any independent variable, where log of the
independent variable appears in the regression only affects the intercept. This follows from the property
log(ab) = log(a) + log(b).
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Effects of Data Scaling on OLS Statistics
KEYWORDS: Bloom’s: Comprehension

3. A variable is standardized in the sample:

a. by multiplying by its mean.
b. by subtracting off its mean and multiplying by its standard deviation.
c. by subtracting off its mean and dividing by its standard deviation.
d. by multiplying by its standard deviation.
ANSWER: c
RATIONALE: FEEDBACK: A variable is standardized in the sample by subtracting off its mean and dividing by
its standard deviation.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STANDAR United States - BUSPROG: Analytic
DS:
TOPICS: Effects of Data Scaling on OLS Statistics
KEYWORDS: Bloom’s: Knowledge

Cengage Learning Testing, Powered by Cognero Page 1

4. Standardized coefficients are also referred to as:
a. beta coefficients.
b. y coefficients.
c. alpha coefficients.
d. j coefficients.
ANSWER: a
RATIONALE: FEEDBACK: Standardized coefficients are also referred to as beta coefficients.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: Effects of Data Scaling on OLS Statistics
KEYWORDS: Bloom’s: Knowledge

5. If a regression equation has only one explanatory variable, say x1, its standardized coefficient must lie in the range:
a. -2 to 0.
b. -1 to 1.
c. 0 to 1.
d. 0 to 2.
ANSWER: b
RATIONALE: FEEDBACK: If a regression equation has only one explanatory variable, say x1, its standardized
coefficient is the correlation coefficient between the dependent variable and x1, and must lie in the
range -1 to 1.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Effects of Data Scaling on OLS Statistics
KEYWORDS: Bloom’s: Comprehension

6. In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment.

log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI

(0.13) (0.022) (0.017)

Which of the following statements is then true?

a. If gdp increases by 1%, bank credit increases by 0.527%, the level of FDI remaining constant.
b. If bank credit increases by 1%, gdp increases by 0.527%, the level of FDI remaining constant.
c. If gdp increases by 1%, bank credit increases by log(0.527)%, the level of FDI remaining constant.
d. If bank credit increases by 1%, gdp increases by log(0.527)%, the level of FDI remaining constant.
ANSWER: b
RATIONALE: FEEDBACK: The equation suggests that if bank credit increases by 1%, gdp increases by 0.527%. This
is known from the value of the coefficient associated with bank credit.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
Cengage Learning Testing, Powered by Cognero Page 2
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Application

7. In the following equation, gdp refers to gross domestic product, and FDI refers to foreign direct investment.
log(gdp) = 2.65 + 0.527log(bankcredit) + 0.222FDI
(0.13) (0.022) (0.017)

Which of the following statements is then true?

a. If FDI increases by 1%, gdp increases by approximately 22.2%, the amount of bank credit remaining
constant.
b. If FDI increases by 1%, gdp increases by approximately 26.5%, the amount of bank credit remaining
constant.
c. If FDI increases by 1%, gdp increases by approximately 24.8%, the amount of bank credit remaining
constant.
d. If FDI increases by 1%, gdp increases by approximately 52.7%, the amount of bank credit remaining
constant.
ANSWER: c
RATIONALE: FEEDBACK: The equation suggests that if FDI increases by 1%, gdp increases by 100(exp(0.222) –
1)%. This equals (1.24857 -1) = 24.8% approx.
POINTS: 1
DIFFICULTY: Challenging
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Application

8. Which of the following statements is true when the dependent variable, y > 0?
a. Taking log of a variable often expands its range.
b. Models using log(y) as the dependent variable will satisfy CLM assumptions more closely than models using
the level of y.
c. Taking log of variables make OLS estimates more sensitive to extreme values.
d. Taking logarithmic form of variables make the slope coefficients more responsive to rescaling.
ANSWER: b
RATIONALE: FEEDBACK: Models using log(y) as the dependent variable will satisfy CLM assumptions more
closely than models using the level of y. This is because taking log of a variable gets it closer to a
normal distribution.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Knowledge

9. Which of the following correctly identifies a limitation of logarithmic transformation of variables?

a. Taking log of variables make OLS estimates more sensitive to extreme values in comparison to variables
taken in level.
b. Logarithmic transformations cannot be used if a variable takes on zero or negative values.
c. Logarithmic transformations of variables are likely to lead to heteroskedasticity.
Cengage Learning Testing, Powered by Cognero Page 3
 d. Taking log of a variable often expands its range which can cause inefficient estimates.
ANSWER: b
RATIONALE: FEEDBACK: Logarithmic transformations cannot be used if a variable takes on zero or
negative values.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STANDARD United States - BUSPROG: Analytic
S:
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Comprehension

10. 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
ANSWER: b
RATIONALE: FEEDBACK: Models with quadratic functions are used quite often to capture decreasing or
increasing marginal effects of a variable.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAND United States - BUSPROG: Analytic
ARDS:
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Knowledge

11. One popular measure to describe the relationship between the dependent variable y and each explanatory
variable is the:
a. standardized effect.
b. interaction effect.
c. average partial effect.
d. partial effect.
ANSWER: c
RATIONALE: FEEDBACK: One popular measure to describe the relationship between the dependent
variable
y and each explanatory variable is the average partial effect.

POINTS: 1
DIFFICULTY: Moderate
NATIONAL STANDARDS United States - BUSPROG: Analytic
:
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Knowledge

2
12. Which of the following correctly represents the equation for adjusted R ?
a.
= 1 – [SSR/(n –1)]/[SST/(n+1)]
Cengage Learning Testing, Powered by Cognero Page 4
 b.
= 1 – [SSR/(n –k – 1)]/[SST/(n+1)]
c.
= 1 – [SSR/(n –k – 1)]/[SST/(n – 1)]
d.
= 1 – [SSR]/[SST/(n – 1)]
ANSWER: c
RATIONALE:
FEEDBACK: = 1 – [SSR/(n –k – 1)]/[SST/(n – 1)]
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

2 2
13. Which of the following correctly identifies an advantage of using adjusted R over R ?
a. Adjusted R2 corrects the bias in R2.
b. Adjusted R2 is easier to calculate than R2.
c. The penalty of adding new independent variables is better understood through adjusted R2 than R2.
d. The adjusted R2 can be calculated for models having logarithmic functions while R2 cannot be calculated for
such models.
ANSWER: c
RATIONALE: FEEDBACK: The penalty of adding new independent variables is better understood through adjusted
2 2
R than R since its calculation is directly dependent on the number of independent variables included.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

14. Two equations form a nonnested model when:

a. one is logarithmic and the other is quadratic.
b. neither equation is a special case of the other.
c. each equation has the same independent variables.
d. there is only one independent variable in both equations.
ANSWER: b
RATIONALE: FEEDBACK: Two equations form a nonnested model when neither equation is a special case of
the other.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARD United States - BUSPROG: Analytic
S:
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

15. An independent variable can be included in a regression model:

Cengage Learning Testing, Powered by Cognero Page 5
 a. when it affects y and is uncorrelated with all of the independent variables of interest.
b. when it does not affect y and is uncorrelated with all of the independent variables of interest.
c. when it affects y and is correlated with all of the independent variables of interest.
d. when it does not affect y and is correlated with all of the independent variables of interest.
ANSWER: a
RATIONALE: FEEDBACK: An independent variable can be included in a regression model when it affects y
and is uncorrelated with all of the independent variables of interest.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

16. A predicted value of a dependent variable:

a. represents the difference between the expected value of the dependent variable and its actual value.
b. is always equal to the actual value of the dependent variable.
c. is independent of explanatory variables and can be estimated on the basis of the residual error term only.
d. represents the expected value of the dependent variable given particular values for the explanatory variables.
ANSWER: d
RATIONALE: FEEDBACK: A predicted value of a dependent variable represents the expected value of the dependent
variable given particular values for the explanatory variables.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Prediction and Residual Analysis
KEYWORDS: Bloom’s: Knowledge

17. Residual analysis refers to the process of:

a. examining individual observations to see whether the actual value of a dependent variable differs from the
predicted value.
b. calculating the squared sum of residuals to draw inferences for the consistency of estimates.
c. transforming models with variables in level to logarithmic functions so as to understand the effect of
percentage changes in the independent variable on the dependent variable.
d. sampling and collection of data in such a way to minimize the squared sum of residuals.
ANSWER: a
RATIONALE: FEEDBACK: Residual analysis refers to the process of examining individual observations to see
whether the actual value of a dependent variable differs from the predicted value.
POINTS: 1
DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Prediction and Residual Analysis
KEYWORDS: Bloom’s: Knowledge

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18. If we use to estimate , then the residual for predicting yi is:
a.

b.

c.

d.

ANSWER: a
RATIONALE:

FEEDBACK: If we use to estimate , then the residual for predicting yi is

POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDA United States - BUSPROG: Analytic
RDS:
TOPICS: Prediction and Residual Analysis
KEYWORDS: Bloom’s: Knowledge

19. Beta coefficients are always greater than standardized coefficients.

a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: Beta coefficients are same as standardized coefficients.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: Effects of Data Scaling on OLS Statistics
KEYWORDS: Bloom’s: Knowledge

20. The centering of explanatory variables about their sample averages before creating quadratics or interactions
forces the coefficient on the levels to be average partial effects.
a. True
b. False
ANSWER: True
RATIONALE: FEEDBACK: The centering of explanatory variables about their sample averages before
creating quadratics or interactions forces the coefficient on the levels to be average partial
effects.
POINTS: 1
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DIFFICULTY: Moderate
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Functional Form
KEYWORDS: Bloom’s: Knowledge

2
21. If a new independent variable is added to a regression equation, the adjusted R increases only if the absolute value of
the t statistic of the new variable is greater than one.
a. True
b. False
ANSWER: True
RATIONALE: 2
FEEDBACK: If a new independent variable is added to a regression equation, the adjusted R increases
only if the absolute value of the t statistic of the new variable is greater than one in absolute value.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

22. If the R-squared value is low, then using OLS equation is very easy to predict individual future outcomes on
y given a set of values for the explanatory variables.
a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: If the R-squared value is low, then using OLS equation is difficult to predict
individual future outcomes on y given a set of values for the explanatory variables.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

23. F statistic can be used to test nonnested models.

a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: F statistic can be used only to test nested models.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: More on Goodness-of-Fit and Selection of Regressors
KEYWORDS: Bloom’s: Knowledge

24. Predictions of a dependent variable are subject to sampling variation.

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 a. True
b. False
ANSWER: True
RATIONALE: FEEDBACK: Predictions of a dependent variable are subject to sampling variation since they are
obtained using OLS estimators.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STANDA United States - BUSPROG: Analytic
RDS:
TOPICS: Prediction and Residual Analysis
KEYWORDS: Bloom’s: Knowledge

25. To make predictions of logarithmic dependent variables, they first have to be converted to their level forms.
a. True
b. False
ANSWER: False
RATIONALE: FEEDBACK: It is possible to make predictions of dependent variables when they are in their
logarithmic form. It is not necessary to convert them into their level forms.
POINTS: 1
DIFFICULTY: Easy
NATIONAL STAN United States - BUSPROG: Analytic
DARDS:
TOPICS: Prediction and Residual Analysis
KEYWORDS: Bloom’s: Knowledge

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