FINAL EXAM 1: Demand Estimation and Forecasting

Multiple-Choice Questions

1) Regression analysis can best be described as:

A) a statistical technique for estimating the best relationship between one
variable and a set
of other selected variables.
B) a statistical technique for determining the true values of variables.
C) a statistical technique for creating functional relationships among
variables.
D) None of the above.

2) If a regression coefficient passes the t-test, it means that:

A) the regression equation is valid.
B) the regression coefficient is significantly different from zero.
C) the regression coefficient can be used for forecasting.
D) the regression coefficient should be included in the regression
equation.

3) Which of the following is a test of the statistical significance of the entire

regression equation?
A) t-test B) R2 C) F-test D) Durbin-Watson test

4) Which of the following is a test of the statistical significance of a particular

regression
coefficient?

A) t-test B) R2 C) F-test D) Durbin-Watson test

5) Which of the following is a measure of the explanatory power of the

regression model?
A) t-test B) R2 C) F-test D) Durbin-Watson test

6) When the R2 of a regression equation is very high, it indicates that:

A) all the coefficients are statistically significant.
B) the intercept term has no economic meaning.
C) a high proportion of the variation in the dependent variable can be
accounted for by the variation in the independent variables.
D) there is a good chance of serial correlation and so the equation must
be discarded.

7) Which indicator shows how well a regression line fits through the scatter
of data points?
A) F-test B) R2
C) t-test D) Durbin-Watson test
8) When a regression coefficient is significant at the .05 level, it means that:
A) there is only a five percent chance that there will be an error in a
forecast.
B) there is 95 percent chance that the regression coefficient is the true
population coefficient.
C) there is a five percent chance or less that the estimated coefficient is
zero.
D) there is a five percent chance or less that the regression coefficient is
not the true population coefficient.

9) The t-test is a statistical measure which:

A) tests the true value of a variable.
B) tests the statistical significance of a regression coefficient.
C) tests the statistical significance of a regression equation.
D) None of the above.

10) The t-statistic is computed by:

A) dividing the regression coefficient by the standard error of the
estimate.
B) dividing the regression coefficient by the standard error of the
coefficient.
C) dividing the standard error of the coefficient by the regression
coefficient.
D) dividing the R2 by the F-statistic.

11) The F-test is used to determine if:

A) a regression coefficient is significant.
B) multicollinearity exists.
C) a regression equation significantly accounts for the variation in the
value of a dependent variable.
D) an identification problem is present.

12) For the regression equation Q = 100 - 10X1 + 25X2, which of the
following statements is
true?
A) X2 is the more important variable because it is positive.
B) When X1 decreases by one unit, Q decreases by 10 units.
C) When X1 increases by 10 units, Q decreases by 1 unit.
D) When X1 increases by one unit, Q decreases by 10 units.

13) When using regression analysis for forecasting, the confidence interval
indicates:
A) the degree of confidence that one has in the equation's R2.
B) the range in which the value of the dependent variable is expected to
lie with a given
 degree of probability.
C) the degree of confidence that one has in the regression coefficients.
D) the range in which the actual outcome of a forecast is going to lie.

14) The use of a dummy variable in regression analysis:

A) indicates that a researcher does not really know what to include in the
equation.
B) indicates that a variable is expected to either have or not have an
impact on a dependent variable.
C) indicates that insufficient data is available for the analysis.
D) indicates the use of hypothetical data.

15) In using regression analysis to estimate demand, which of the following

problems is most directly a result of insufficient data?
A) the identification problem B) the problem of a low R2
C) the problem of high standard errors D) the problem of insignificant
F-statistics

16) Which of the following refers to a relatively high correlation among the
independent
variables of a regression equation?
A) autocorrelation
B) the identity problem
C) statistically insignificant regression coefficients
D) multicollinearity

17) A manager will have the least confidence in an explanatory variable that:
A) does not pass the F-test. B) is expressed as a dummy
variable.
C) does not pass the t-test. D) constitutes only a small part of
R2.

18) From a management policy perspective, which regression result is the

most useful?
A) a regression equation that passes the F-test
B) a regression equation whose explanatory variables all pass the t-test
C) a regression equation that has the highest R2
D) a regression equation that has the least number of dummy variables

19) Which of the following is a leading economic indicator?

A) average hours, manufacturing B) money supply M2
C) stock prices, 500 common stocks D) All of the above.

20) An explanatory forecasting technique in which the analyst must select

independent variables that help determine the dependent variable is called:
A) exponential smoothing. B) regression analysis.
 C) trend analysis. D) moving average method.

Analytical Question

The following are the sales achieved by Jensen Fabrics during the last 7
years:
1993 $116,000
1994 124,000
1995 127,000
1996 146,000
1997 155,000
1998 154,000
1999 162,000
Using the compound growth rate calculation, what would be your estimate
for sales in 2000?

Reference:
Chapter 5 - Demand Estimation and Forecasting
Keat, Paul and Philip K.Y. Young (2003). Managerial Economics: Economic
Tools for Today’s Decision Makers.