Test1 PDF
Test1 PDF
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(5) Which of the following assumptions concerning the probability distribution of the random error term is
stated incorrectly?
A) The distribution is normal.
B) The mean of the distribution is 0.
C) The variance of the distribution increases as X increases.
D) The errors are independent.
(6) What do we mean when we say that a simple linear regression model is "statistically" useful?
A) All the statistics computed from the sample make sense.
B) The model is an excellent predictor of Y.
C) The model is "practically" useful for predicting Y.
D) The model is a better predictor of Y than the sample mean, Y .
TABLE 1
A large national bank charges local companies for using their services. A bank official reported the results of a regression analysis
designed to predict the bank's charges (Y) -- measured in dollars per month -- for services rendered to local companies. One independent
variable used to predict service charge to a company is the company's sales revenue (X) -- measured in millions of dollars. Data for 21
companies who use the bank's services were used to fit the model:
E(Y) = β0 + β1X
The results of the simple linear regression are provided below.
Y = -2,700 + 20X, SYX = 65, two-tail p value of 0.034 (for testing β1)
(9) Referring to Table 1, interpret the estimate of β0, the Y-intercept of the line.
A) All companies will be charged at least $2,700 by the bank.
B) There is no practical interpretation since a sales revenue of $0 is a nonsensical value.
C) About 95% of the observed service charges fall within $2,700 of the least squares line.
D) For every $1 million increase in sales revenue, we expect a service charge to decrease $2,700.
(10) Referring to Table 1, interpret the estimate of σ, the standard deviation of the random error term (standard
error of the estimate) in the model.
A) About 95% of the observed service charges fall within $65 of the least squares line.
B) About 95% of the observed service charges equal their corresponding predicted values.
C) About 95% of the observed service charges fall within $130 of the least squares line.
D) For every $1 million increase in sales revenue, we expect a service charge to increase $65.
(11) Referring to Table 1, interpret the p-value for testing whether β1 equals 0.
A) There is sufficient evidence (at the α = 0.05) to conclude that sales revenue (X) is a useful linear predictor of
service charge (Y).
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B) There is insufficient evidence (at the α = 0.10) to conclude that sales revenue (X) is a useful linear predictor
of service charge (Y).
C) Sales revenue (X) is a poor predictor of service charge (Y).
D) For every $1 million increase in sales revenue, we expect a service charge to increase $0.034.
(12) Referring to Table 1, a 95% confidence interval for β1 is (15, 25). Interpret the interval.
A) We are 95% confident that the mean service charge will fall between $15 and $25 per month.
B) We are 95% confident that the sales revenue (X) will increase between $15 and $25 million for every $1
increase in service charge (Y).
C) We are 95% confident that average service charge (Y) will increase between $15 and $25 for every $1
million increase in sales revenue (X).
D) At the α = 0.05 level, there is no evidence of a linear relationship between service charge (Y) and sales
revenue (X).
TABLE 2
It is believed that GPA (grade point average, based on a four point scale) should have a positive linear relationship with ACT scores.
Given below is the Excel output from regressing GPA on ACT scores using a data set of 8 randomly chosen students from a Big-Ten
university.
ANOVA
df SS MS F Significance F
Regression 1 0.5940 0.5940 8.1986 0.0286
Residual 6 0.4347 0.0724
Total 7 1.0287
(13) Referring to Table 2, the interpretation of the coefficient of determination in this regression is
A) 57.74% of the total variation of ACT scores can be explained by GPA.
B) ACT scores account for 57.74% of the total fluctuation in GPA.
C) GPA accounts for 57.74% of the variability of ACT scores.
D) None of the above.
(14) Referring to Table 2, the value of the measured test statistic to test whether there is any linear relationship
between GPA and ACT is
A) 0.0356 B) 0.1021 C) 0.7598 D) 2.8633
(15) Referring to Table 2, what is the predicted average value of GPA when ACT = 20?
A) 2.61 B) 2.66 C) 2.80 D) 3.12
(16) Referring to Table 2, what are the decision and conclusion on testing whether there is any linear
relationship at 1% level of significance between GPA and ACT scores?
A) Do not reject the null hypothesis; hence there is not sufficient evidence to show that ACT scores and GPA
are linearly related.
B) Reject the null hypothesis; hence there is not sufficient evidence to show that ACT scores and GPA are
linearly related.
C) Do not reject the null hypothesis; hence there is sufficient evidence to show that ACT scores and GPA are
linearly related.
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D) Reject the null hypothesis; hence there is sufficient evidence to show that ACT scores and GPA are linearly
related.
(17) Referring to Table 2, the value of the measured (observed) test statistic of the F-test for H0 : β1 = 0 vs. H1
: β1 ≠ 0
A) may be negative.
B) is always positive.
C) is always negative.
D) has the same sign as the corresponding t test statistic.
(18) In a multiple regression problem involving two independent variables, if b1 is computed to be +2.0, it
means that
A) the relationship between X1 and Y is significant.
B) the estimated mean of Y increases by 2 units for each increase of 1 unit of X1, holding X2 constant.
C) the estimated mean of Y increases by 2 units for each increase of 1 unit of X1, without regard to X2.
D) the estimated mean of Y is 2 when X1 equals zero.
(19) In a multiple regression model, the value of the coefficient of multiple determination
A) has to fall between -1 and +1.
B) has to fall between 0 and +1.
C) has to fall between -1 and 0.
D) can fall between any pair of real numbers.
TABLE 3
An economist is interested to see how consumption for an economy (in $ billions) is influenced by gross domestic product ($ billions)
and aggregate price (consumer price index). The Microsoft Excel output of this regression is partially reproduced below.
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.991
R Square 0.982
Adjusted R Square 0.976
Standard Error 0.299
Observations 10
ANOVA
df SS MS F Signif F
Regression 2 33.4163 16.7082 186.325 0.0001
Residual 7 0.6277 0.0897
Total 9 34.0440
(20) Referring to Table 3, when the economist used a simple linear regression model with consumption as the
dependent variable and GDP as the independent variable, he obtained an r2 value of 0.971. What additional
percentage of the total variation of consumption has been explained by including aggregate prices in the
multiple regression?
A) 98.2 B) 11.1 C) 2.8 D) 1.1
(22) Referring to Table 3, the p-value for the aggregated price index is
A) 0.05. B) 0.01. C) 0.001. D) None of the above.
(23) Referring to Table 3, the p-value for the regression model as a whole is
A) 0.05. B) 0.01. C) 0.001. D) None of the above.
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(24) Referring to Table 3, what is the predicted consumption level for an economy with GDP equal to $4 billion
and an aggregate price index of 150?
A) $1.39 billion B) $2.89 billion C) $4.75 billion D) $9.45 billion
(25) Referring to Table 3, what is the estimated mean consumption level for an economy with GDP equal to $4
billion and an aggregate price index of 150?
A) $1.39 billion B) $2.89 billion C) $4.75 billion D) $9.45 billion
(26) Referring to Table 3, what is the estimated mean consumption level for an economy with GDP equal to $2
billion and an aggregate price index of 90?
A) $1.39 billion B) $2.89 billion C) $4.75 billion D) $9.45 billion
(27) Referring to Table 3, one economy in the sample had an aggregate consumption level of $3 billion, a GDP
of $3.5 billion, and an aggregate price level of 125. What is the residual for this data point?
A) $2.52 billion B) $0.48 billion C) - $1.33 billion D) - $2.52 billion
(28) Referring to Table 3, one economy in the sample had an aggregate consumption level of $4 billion, a GDP
of $6 billion, and an aggregate price level of 200. What is the residual for this data point?
A) $4.39 billion B) $0.39 billion C) - $0.39 billion D) - $1.33 billion
(29) Referring to Table 3, to test for the significance of the coefficient on aggregate price index, the value of the
relevant t-statistic is
A) 2.365. B) 0.143. C) -0.219. D) -1.960.
(30) Referring to Table 3, to test for the significance of the coefficient on aggregate price index, the p-value is
A) 0.0001. B) 0.8330. C) 0.8837. D) 0.9999.
(31) Referring to Table 3, to test for the significance of the coefficient on gross domestic product, the p-value is
A) 0.0001. B) 0.8330. C) 0.8837. D) 0.9999.
(32) Referring to Table 3, to test whether aggregate price index has a negative impact on consumption, the p-
value is ________.
A) 0.0001 B) 0.4165 C) 0.8330 D) 0.8837
(33) Referring to Table 3, to test whether aggregate price index has a positive impact on consumption, the p-
value is
A) 0.0001. B) 0.4165. C) 0.5835. D) 0.8330.
(34) Referring to Table 3, to test whether gross domestic product has a positive impact on consumption, the p-
value is
A) 0.00005. B) 0.0001. C) 0.9999. D) 0.99995.
(35) If a categorical independent variable contains 4 categories, then ________ dummy variable(s) will be
needed to uniquely represent these categories.
A) 1 B) 2 C) 3 D) 4
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TABLE A
The manager of the purchasing department of a large banking organization would like to develop a model to predict the amount of time
(measured in hours) it takes to process invoices. Data are collected from a sample of 30 days, and the number of invoices processed and
completion time in hours is recorded. Below is the regression output:
Regression Statistics
Multiple R 0.9447
R Square 0.8924
Adjusted R Square 0.8886
Standard Error 0.3342
Observations 30
ANOVA
df SS MS F Significance F
Regression 1 25.9438 25.9438 232.2200 4.3946E-15
Residual 28 3.1282 0.1117
Total 29 29.072
Referring to Table A, please answer the following questions. (1% each, total 15%)
(1) What is the estimated average amount of time it takes to process one additional invoice?
(2) What is the value of the measured t-test statistic to test whether the amount of time depends linearly on the
number of invoices processed?
(3) What is the p-value of the measured F-test statistic to test whether the number of invoices processed affects
the amount of time?
(4) What is the p-value of the measured t-test statistic to test whether the number of invoices processed affects
the amount of time is
(5) What are the degrees of freedom for the F test on whether the number of invoices processed affects the
amount of time?
(6) What are the degrees of freedom for the t test on whether the number of invoices processed affects the
amount of time?
(7) What is the error sum of squares (SSE) of the above regression?
(8) What is the 90% confidence interval for the average change in the amount of time needed as a result of
processing one additional invoice?
(9) Can you be 95% confident that the average amount of time needed to process one additional invoice is
somewhere between 0.0109 and 0.0143 hours?
(10) Is there sufficient evidence that the amount of time needed linearly depends on the number of invoices
processed at a 5% level of significance?
(11) Is there sufficient evidence that the amount of time needed linearly depends on the number of invoices
processed at a 1% level of significance?
(12) To test the claim that the average amount of time depends positively on the number of invoices processed
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against the null hypothesis that the average amount of time does not depend linearly on the number of invoices
processed, what is the p-value of the test statistic?
(13) Predict the amount of time it would take to process 150 invoices.
(14) What percentage of the variation in the amount of time needed can be explained by the variation in the
number of invoices processed?
(15) What is the relationship between the t-test and F-test in this case?
TABLE B
You worked as an intern at We Always Win Car Insurance Company last summer. You notice that individual car insurance premiums
depend very much on the age of the individual, the number of traffic tickets received by the individual, and the population density of the
city in which the individual lives. You performed a regression analysis in EXCEL and obtained the following information:
Regression Analysis
Regression Statistics
Multiple R 0.63
R Square 0.40
Adjusted R Square 0.23
Standard Error 50.00
Observations 15.00
ANOVA
df SS MS F Significance F
Regression 3 5994.24 2.40 0.12
Residual 11 27496.82
Total 45479.54
Referring to Table B, please answer the following questions. (1.5% each, total 22.5%)
(1) The proportion of the total variability in insurance premiums that can be explained by AGE, TICKETS, and
DENSITY is ________.
(4) The estimated average change in insurance premiums for every 10 additional tickets received is ________.
(5) The 99% confidence interval for the change in average insurance premiums of a person who has become 1
year older (i.e., the slope coefficient for AGE) is -0.82 ±________.
(6) The total degrees of freedom that are missing in the ANOVA table should be ________.
(7) The regression sum of squares that is missing in the ANOVA table should be ________.
(8) The residual mean squares (MSE) that are missing in the ANOVA table should be ________.
(9) To test the significance of the multiple regression model, what is the form of the null hypothesis?
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(10) To test the significance of the multiple regression model, the value of the test statistic is ________.
(11) To test the significance of the multiple regression model, the p-value of the test statistic in the sample is
________.
(12) To test the significance of the multiple regression model, what are the degrees of freedom?
(13) To test the significance of the multiple regression model, the null hypothesis should be rejected while
allowing for 1% probability of committing a type I error. True or False?
(14) The multiple regression model is significant at a 10% level of significance. True or False?
TABLE C
An econometrician is interested in evaluating the relation of demand for building materials to mortgage rates
in Los Angeles and San Francisco. He believes that the appropriate model is
Y = 10 + 5X1 + 8X2
where X1 = mortgage rate in %
X2 = 1 if SF, 0 if LA
Y = demand in $100 per capita
Referring to Table C, please answer the following questions. (2.5% each, total 12.5%)
(1) Holding constant the effect of city, each additional increase of 1% in the mortgage rate would lead to an
estimated increase of ________ in the mean demand.
(2) The effect of living in San Francisco rather than Los Angeles is to increase the mean demand by an
estimated ________.
(3) The predicted demand in Los Angeles when the mortgage rate is 8% is ________.
(4) The predicted demand in San Francisco when the mortgage rate is 10% is ________.
(5) The fitted model for predicting demand in Los Angeles is ________.
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The t Table
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/ df1 =1 2 3 4 5 6 7 8 9 10 12 15 20 24 30 40 60 120 ∞
df2 =1 161.4476 199.5000 215.7073 224.5832 230.1619 233.9860 236.7684 238.8827 240.5433 241.8817 243.9060 245.9499 248.0131 249.0518 250.0951 251.1432 252.1957 253.2529 254.3144
2 18.5128 19.0000 19.1643 19.2468 19.2964 19.3295 19.3532 19.3710 19.3848 19.3959 19.4125 19.4291 19.4458 19.4541 19.4624 19.4707 19.4791 19.4874 19.4957
3 10.1280 9.5521 9.2766 9.1172 9.0135 8.9406 8.8867 8.8452 8.8123 8.7855 8.7446 8.7029 8.6602 8.6385 8.6166 8.5944 8.5720 8.5494 8.5264
4 7.7086 6.9443 6.5914 6.3882 6.2561 6.1631 6.0942 6.0410 5.9988 5.9644 5.9117 5.8578 5.8025 5.7744 5.7459 5.7170 5.6877 5.6581 5.6281
5 6.6079 5.7861 5.4095 5.1922 5.0503 4.9503 4.8759 4.8183 4.7725 4.7351 4.6777 4.6188 4.5581 4.5272 4.4957 4.4638 4.4314 4.3985 4.3650
6 5.9874 5.1433 4.7571 4.5337 4.3874 4.2839 4.2067 4.1468 4.0990 4.0600 3.9999 3.9381 3.8742 3.8415 3.8082 3.7743 3.7398 3.7047 3.6689
7 5.5914 4.7374 4.3468 4.1203 3.9715 3.8660 3.7870 3.7257 3.6767 3.6365 3.5747 3.5107 3.4445 3.4105 3.3758 3.3404 3.3043 3.2674 3.2298
8 5.3177 4.4590 4.0662 3.8379 3.6875 3.5806 3.5005 3.4381 3.3881 3.3472 3.2839 3.2184 3.1503 3.1152 3.0794 3.0428 3.0053 2.9669 2.9276
9 5.1174 4.2565 3.8625 3.6331 3.4817 3.3738 3.2927 3.2296 3.1789 3.1373 3.0729 3.0061 2.9365 2.9005 2.8637 2.8259 2.7872 2.7475 2.7067
10 4.9646 4.1028 3.7083 3.4780 3.3258 3.2172 3.1355 3.0717 3.0204 2.9782 2.9130 2.8450 2.7740 2.7372 2.6996 2.6609 2.6211 2.5801 2.5379
11 4.8443 3.9823 3.5874 3.3567 3.2039 3.0946 3.0123 2.9480 2.8962 2.8536 2.7876 2.7186 2.6464 2.6090 2.5705 2.5309 2.4901 2.4480 2.4045
12 4.7472 3.8853 3.4903 3.2592 3.1059 2.9961 2.9134 2.8486 2.7964 2.7534 2.6866 2.6169 2.5436 2.5055 2.4663 2.4259 2.3842 2.3410 2.2962
13 4.6672 3.8056 3.4105 3.1791 3.0254 2.9153 2.8321 2.7669 2.7144 2.6710 2.6037 2.5331 2.4589 2.4202 2.3803 2.3392 2.2966 2.2524 2.2064
14 4.6001 3.7389 3.3439 3.1122 2.9582 2.8477 2.7642 2.6987 2.6458 2.6022 2.5342 2.4630 2.3879 2.3487 2.3082 2.2664 2.2229 2.1778 2.1307
15 4.5431 3.6823 3.2874 3.0556 2.9013 2.7905 2.7066 2.6408 2.5876 2.5437 2.4753 2.4034 2.3275 2.2878 2.2468 2.2043 2.1601 2.1141 2.0658
16 4.4940 3.6337 3.2389 3.0069 2.8524 2.7413 2.6572 2.5911 2.5377 2.4935 2.4247 2.3522 2.2756 2.2354 2.1938 2.1507 2.1058 2.0589 2.0096
17 4.4513 3.5915 3.1968 2.9647 2.8100 2.6987 2.6143 2.5480 2.4943 2.4499 2.3807 2.3077 2.2304 2.1898 2.1477 2.1040 2.0584 2.0107 1.9604
18 4.4139 3.5546 3.1599 2.9277 2.7729 2.6613 2.5767 2.5102 2.4563 2.4117 2.3421 2.2686 2.1906 2.1497 2.1071 2.0629 2.0166 1.9681 1.9168
19 4.3807 3.5219 3.1274 2.8951 2.7401 2.6283 2.5435 2.4768 2.4227 2.3779 2.3080 2.2341 2.1555 2.1141 2.0712 2.0264 1.9795 1.9302 1.8780
20 4.3512 3.4928 3.0984 2.8661 2.7109 2.5990 2.5140 2.4471 2.3928 2.3479 2.2776 2.2033 2.1242 2.0825 2.0391 1.9938 1.9464 1.8963 1.8432
21 4.3248 3.4668 3.0725 2.8401 2.6848 2.5727 2.4876 2.4205 2.3660 2.3210 2.2504 2.1757 2.0960 2.0540 2.0102 1.9645 1.9165 1.8657 1.8117
22 4.3009 3.4434 3.0491 2.8167 2.6613 2.5491 2.4638 2.3965 2.3419 2.2967 2.2258 2.1508 2.0707 2.0283 1.9842 1.9380 1.8894 1.8380 1.7831
23 4.2793 3.4221 3.0280 2.7955 2.6400 2.5277 2.4422 2.3748 2.3201 2.2747 2.2036 2.1282 2.0476 2.0050 1.9605 1.9139 1.8648 1.8128 1.7570
24 4.2597 3.4028 3.0088 2.7763 2.6207 2.5082 2.4226 2.3551 2.3002 2.2547 2.1834 2.1077 2.0267 1.9838 1.9390 1.8920 1.8424 1.7896 1.7330
25 4.2417 3.3852 2.9912 2.7587 2.6030 2.4904 2.4047 2.3371 2.2821 2.2365 2.1649 2.0889 2.0075 1.9643 1.9192 1.8718 1.8217 1.7684 1.7110
26 4.2252 3.3690 2.9752 2.7426 2.5868 2.4741 2.3883 2.3205 2.2655 2.2197 2.1479 2.0716 1.9898 1.9464 1.9010 1.8533 1.8027 1.7488 1.6906
27 4.2100 3.3541 2.9604 2.7278 2.5719 2.4591 2.3732 2.3053 2.2501 2.2043 2.1323 2.0558 1.9736 1.9299 1.8842 1.8361 1.7851 1.7306 1.6717
28 4.1960 3.3404 2.9467 2.7141 2.5581 2.4453 2.3593 2.2913 2.2360 2.1900 2.1179 2.0411 1.9586 1.9147 1.8687 1.8203 1.7689 1.7138 1.6541
29 4.1830 3.3277 2.9340 2.7014 2.5454 2.4324 2.3463 2.2783 2.2229 2.1768 2.1045 2.0275 1.9446 1.9005 1.8543 1.8055 1.7537 1.6981 1.6376
30 4.1709 3.3158 2.9223 2.6896 2.5336 2.4205 2.3343 2.2662 2.2107 2.1646 2.0921 2.0148 1.9317 1.8874 1.8409 1.7918 1.7396 1.6835 1.6223
40 4.0847 3.2317 2.8387 2.6060 2.4495 2.3359 2.2490 2.1802 2.1240 2.0772 2.0035 1.9245 1.8389 1.7929 1.7444 1.6928 1.6373 1.5766 1.5089
60 4.0012 3.1504 2.7581 2.5252 2.3683 2.2541 2.1665 2.0970 2.0401 1.9926 1.9174 1.8364 1.7480 1.7001 1.6491 1.5943 1.5343 1.4673 1.3893
120 3.9201 3.0718 2.6802 2.4472 2.2899 2.1750 2.0868 2.0164 1.9588 1.9105 1.8337 1.7505 1.6587 1.6084 1.5543 1.4952 1.4290 1.3519 1.2539
∞ 3.8415 2.9957 2.6049 2.3719 2.2141 2.0986 2.0096 1.9384 1.8799 1.8307 1.7522 1.6664 1.5705 1.5173 1.4591 1.3940 1.3180 1.2214 1.0000
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