MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS 2013/2014 ACADEMIC YEAR
FOURTH YEAR SECOND SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF ARTS IN ECONOMICS
COURSE CODE: ECO 413
COURSE TITLE: ECONOMETRICS
DATE: 16TH APRIL, 2014 TIME: 9.00A.M – 12.00 P.M.
INSTRUCTIONS TO CANDIDATES
Question ONE is compulsory
Answer any other TWO questions
This paper consists of 2 printed pages. Please turn over.
QUESTION 1
To confirm or refute that variable Y is influenced by variable X and Z data was collected.
Y 15 21 29 41 53 61 81 93 104 126
X 2 6 15 21 24 40 50 68 80 98
Z 8 6 4 2 3 2 1 2 5 3
Test the hypothesis that X and/ or Z are important determinants of Y. (25 marks)
QUESTION 2
Y1 = dY3 + e1
Y2 = b1Y3 + b2X1 + e2
Y3 = a1Y1 + a2Y2 + a3X2 + e3
i. Use rank condition to identify each equation (12 Marks)
ii. For each equation explain the appropriate estimation technique. (3 marks)
QUESTION 3
a. Justify the use of ordinary Least Square method in regression (2 marks)
b. Use matrix algebra to prove two properties of OLS estimates (10 marks)
c. Explain the possible causes of the random term in regression ( 3 marks)
QUESTION 4
The following cross section data was collected to determine the nature of relationship between Y and X
Y 15 50 56 9 96 40 28 40 15 60 14 10 28 56 28
x 9 4 6 7 16 3 6 1 8 3 5 7 9 2 14
Test for hetereoscedasticity (15 marks)
QUESTION 5
a. Distinguish between the paired terms and explain the consequences of each
i. Under fitting Vs Over fitting (5 marks)
ii. Autocorrelation Vs Simultaneity (5 marks)
b. Show the effect of perfect multicollinearity on
i. Mean (2 marks)
ii. Variance (3 marks)
