Chapter 1 Economic Questions and Data

1 Copyright © 2019 Pearson Education, Inc.Introduction to Econometrics, 4e (Stock/Watson) Chapter 1 Economic Questions and Data

1.1 Multiple Choice Questions

1) Analyzing the behavior of unemployment rates across U.S. states in March of 2006 is an

example of using:

• time series data.
• panel data.
• cross-sectional data.
• experimental data.

Answer: C

2) Studying inflation in the United States from 1970 to 2006 is an example of using:

• randomized controlled experiments.
• time series data.
• panel data.
• cross-sectional data.

Answer: B

3) Analyzing the effect of minimum wage changes on teenage employment across the 48

contiguous U.S. states from 1980 to 2004 is an example of using:

• time series data.
• panel data.
• having a treatment group vs. a control group, since only teenagers receive minimum wages.
• cross-sectional data.

Answer: B

4) Panel data:

• is also called longitudinal data.
• is the same as time series data.
• studies a group of people at a point in time.
• typically uses control and treatment groups.

Answer: A

5) Econometrics can be defined as follows with the exception of:

• the science of testing economic theory.
• fitting mathematical economic models to real-world data.
• a set of tools used for forecasting future values of economic variables.
• measuring the height of economists.

Answer: D

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6) To provide quantitative answers to policy questions:

• it is typically sufficient to use common sense.
• you should interview the policy makers involved.
• you should examine empirical evidence.
• is typically impossible since policy questions are not quantifiable.

Answer: C

7) An example of a randomized controlled experiment is when:

• households receive a tax rebate in one year but not the other.
• one U.S. state increases minimum wages and an adjacent state does not, and employment

differences are observed.

• random variables are controlled for by holding constant other factors.
• some 5th graders in a specific elementary school are allowed to use computers at school

while others are not, and their end-of-year performance is compared holding constant other factors.

Answer: D

8) Ideal randomized controlled experiments in economics are:

• often performed in practice.
• often used by the Federal Reserve to study the effects of monetary policy.
• useful because they give a definition of a causal effect.
• sometimes used by universities to determine who graduates in four years rather than five.

Answer: C

9) Most economic data are obtained:

• through randomized controlled experiments.
• by calibration methods.
• through textbook examples typically involving ten observation points.
• by observing real-world behavior.

Answer: D

10) One of the primary advantages of using econometrics over typical results from economic

theory, is that:

• it potentially provides you with quantitative answers for a policy problem rather than simply

suggesting the direction (positive/negative) of the response.

• teaching you how to use statistical packages
• learning how to invert a 4 by 4 matrix.
• all of the above.

Answer: A

11) In a randomized controlled experiment:

• there is a control group and a treatment group.
• you control for the effect that random numbers are not truly randomly generated
• you control for random answers
• the control group receives treatment on even days only.

Answer: A

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3 Copyright © 2019 Pearson Education, Inc.12) The reason why economists do not use experimental data more frequently is for all of the

following reasons EXCEPT that real-world experiments:

• cannot be executed in economics.
• with humans are difficult to administer.
• are often unethical.
• have flaws relative to ideal randomized controlled experiments.

Answer: A

13) The most frequently used experimental or observational data in econometrics are of the

following type:

• cross-sectional data.
• randomly generated data.
• time series data.
• panel data.

Answer: A

14) In the graph below, the vertical axis represents average real GDP growth for 65 countries over the period 1960-1995, and the horizontal axis shows the average trade share within these countries.

This is an example of:

• cross-sectional data.
• experimental data.
• a time series.
• longitudinal data.

Answer: A

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4 Copyright © 2019 Pearson Education, Inc.15) The accompanying graph

Is an example of:

• cross-sectional data.
• experimental data.
• a time series.
• longitudinal data.

Answer: A

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