Chapter 2 Functional Forms

Question 1

B2=?

Answer 1

B2=ΣXiYi/Xi^2 where Xi=xi - mean(x) and Yi =yi - mean(y)

Question 2

B1=?

Answer 2

B1=mean(y)-mean(x)(B2)

Question 3

B1+B2=1,then?

Answer 3

Constant Returns to Scale

Question 4

B1+B2>1,then?

Answer 4

Increasing Returns to Scale

Question 5

B1+B2<1,then?

Answer 5

Decreasing Returns to Scale

Question 6

When can you compare R-squared in a model?

Answer 6

R-squared can be only compared when the dependent variables of the models are the same.

Question 7

What is a vertical asymptote?

Answer 7

As x→c, then y= ∞ ,for y=f(x).Here x=c is the vertical asymptote.

Question 8

What is a horizontal asymptote?

Answer 8

As x→∞, then y=c ,for y=f(x).Here y=c is the vertical asymptote

Question 9

What is an oblique asymptote?

Answer 9

For a function of the form mx+c +a/x+b/x²……..,when x→∞, then y=mx+c is the oblique asymptote

Question 10

t-statistic should be greater/less than what amount to be statistically significant?

Answer 10

Greater than 3 or less than -3

Question 11

What is the interpretation of B2 in the model,

LnYi=B1 +B2Xi +ui?

Answer 11

1 unit increase in Xi, on average, will result in (B2*100)% increase in Yi.

Question 12

What is the interpretation of B2 in the model,

Yi=B1 +B2LnXi +ui?

Answer 12

1 percentage increase in Xi, on average, will result in (B2/100) units increase in Yi.

Question 13

What is the interpretation of B2 in the model,

Yi=B1 +B2Xi +ui?

Answer 13

B2 if positive/negative will show a positive/negative trend between Xi and Yi.

Question 14

What is the interpretation of B2 in the model,

LnYi=B1 +B2LnXi +ui?

Answer 14

1 percentage increase in Xi, on average, will result in B2 percentage increase in Yi.

Question 15

What is the interpretation of B2 in the model,

Yi=B1 +B2(1/Xi) +ui?

Answer 15

B2 if negative, will show a positive trend between Xi and Yi. And if B2 is positive, then we can see a negative trend between Xi and Yi.