ECO338: INTRODUCTORY ECONOMETRICS WITH APPLICATIONS II
TUTORIAL QUESTIONS
QUESTION 1:
(a) Determine the inverse of the matrix:
A= [−5 4
−4 3 ]
(b) Given the demand equation for products x and y as:
[ ][ ] [ ]
−5 4 x −2
−4 3 y −3
=
and the supply equation for the products x and y as:
[ 1 2 x
3 −1 y ][ ] [ ]
= p
q
(bi) Use the matrix inversion in (a) above to determine the values of x and y.
(ii) Using the values of products x and y obtained in (ai) above, find the value of p and q.
QUESTION 2
(a) Using matrix inversion approach, find the inverse of:
[ ]
1 1 1
A= 3 1 2
9 2 4
Hence or otherwise solve the problem of BigSam Plc., a firm dealing in three items at three
different stock locations. The table below depicts the total cost of purchase and total revenue
from these items at each location:
PRODUCTS Total Cost Total
Revenue
STOCK Gari Beans Rice (TC) (TR)
LOCATIONS Kg kg kg ₦ ₦
Ikeja 1 1 1 36,250 47,000
Ibadan 3 1 2 38,750 49,750
Ijebu 9 2 4 38,000 50,250
By forming relevant matrix equations for:
- the total purchase cost and
- the total revenue
of the above items at the given locations respectively,
Determine:
(i) The unit purchase cost
(ii) The unit sales price and
(iii) The unit profit of each item respectively
(b) Show that A × A−' =I
Page 1 of 5
QUESTION 3:
(a) List five (5) basic properties of determinants.
(b) Given the input-coefficient matrix and final demand vector:
[ ] []
0.2 0.3 0.2 10
A = 0.4 0.1 0.2 and 5
0.1 0.3 0.2 6
(i) Find the ‘correct’ output levels for the three industries. (Hint: Round off final answers to
two decimal places)
(ii) Given that a01 = 0.3, a02 = 0.3 and a03 = 0.4, calculate the required primary input to
produce the solution output levels from 3(b) above and interpret the economic implications of
the results.
QUESTION 4
(ai) What is econometric model? Explain what is meant by model specification.
(ii)Given the econometric model, ( Y =α 0+ α 1 X +e i ):
Provide five reasons why the stochastic term ( e i) is included in the model and state the
assumptions underlying its inclusion.
(bi) Critically analyse the steps required in econometrics modelling and
(ii) Elucidate the major criteria for evaluating the results of an estimated model.
(c) Distinguish between t-test test and F-ratio test, and state when each is applicable in practice.
QUESTION 5
(a) Explain what is meant by model specification?
(b) From the economic relationship specified as Y = b0 + b1 Xi + ei
(i) What is the role of ei and what are the assumptions underlying its inclusion in the
relationship?
(ii) Derive the formulae for estimating the parameters of the linear stochastic
regression model
(c) Explain how to test the statistical significance of the estimated coefficients and the
regression model?
QUESTION 6
One major assumption of OLS is that
Cov (Ui , Uj ) = E { [ Ui – E(Ui) ] [ Uj – E(Uj )] }
= E ( Ui , Uj ) = 0 for i not equal to j
Page 2 of 5
and given that E(Ui) = E(Uj) = 0. If this assumption is not satisfied,
(i) Which problem arises?
(ii) What are the sources and consequences of the problem?
(iii) How can you test and solve this problem?
QUESTION 7
(a) Apart from the “Do nothing approach”, explain five other approaches recommended by
the “Rule of Thumb” procedures in resolving the problem of multicollinearity in regression
analysis.
(b) What is Heteroskedasticity? List the consequences, tests and solutions to the problems of
heteroskedasticity.
QUESTION 8
(a) Compare and contrast the differences between adjusted and unadjusted R 2 and which R2
should one use in practice?
(b) Distinguish between t-test test and F-ratio test, and state when each is applicable in practice.
(c) Given the OLS results of the following equation: Q i = b0 + b1Pi + b2Yi + ei with the
quantity supplied of a commodity (Q), its price (P), and consumer income (Y) from a sample
data of fifteen (15) observations. A researcher used the sample data to estimate the following
OLS regression equation: ^ i = b^ 0 + b^ 1Pi + b^ 2Yi + e^ i
Q
^ = 53. 1599 + 0.7266P + 2.7360Y
Q
¿
S( b ) i
(……….) (0.0494) (……….)
¿
t (b )i
(4.0271) (……….) (3.1818)
Adjusted R2 =0.9986 ∑e2 = 79.2508
(i) Fill the figures for Se and t* and interpret the coefficient of the estimated parameters;
(ii) Test at 5% significance level (tα/2=2.1790), interpret the significance or otherwise of each
¿
t (b )
i
(iii) Determine the unadjusted R2 and interpret the result;
(iv) Test for the overall significance of the model at 5% level of significance; [F 0.05 [2, 12]=
3.89]
(v) Comment on the theoretical plausibility of the signs in the above model.
QUESTION 9
The following table depicts the data of outputs and capital expenditures in millions of naira,
for a period of six years for a manufacturing industry.
Page 3 of 5
Months 2017 2018 2019 2020 2021 2022
Capital expenditure 3 5 6 7 10 11
( ₦’m )
Company’s output (₦’m) 1 6 4 5 8 12
Required:
(i) Plot the data on a scatter diagram using your knowledge of economic theory to
determine the exogenous and endogenous variables.
(ii) Compute the correlation coefficient and interpret your result;
(iii) Test for the significance of the correlation coefficient when t0.05 = 1.86;
(iv) Estimate the parameters of the linear stochastic regression model;
(v) Show the estimated regression equation on the graph in (i) above;
(vi) Find and interpret the coefficient of determination;
(vii) Calculate the standard errors of the estimated parameters in (iv) above;
(viii) Forecast the value of capital expended when output is ₦10 million naira and the
output level when the capital expenditure is ₦9 million naira.
QUESTION 10
The intermediate results of the quantity supply of a commodity (Y), its price(X 1) and
consumer’s income (X2) are given below from sample data of fifteen (15) observations.
∑Y=5515.4, ∑X1=6041.4, ∑X2=120, ∑y2=66042.3, ∑x21=84855.1, ∑x22=280,
∑yx1=74778.4, ∑yx2=4250.9, ∑x1x2=4796. Compute:
(i) The unadjusted and adjusted R2 and interpret the results;
(ii) The parameters (b0, b1, b2 ) of the regression model and state the economic
meaning of your estimates;
(iii) The variances and standard errors of estimated parameters;
(iv) Test for the statistical reliability of the estimates (b 0,b1,b2) at 5% level of
significance (i.e., t0.025=2.365); and
(v) Test for the overall significance of the model at F α [k-1, n-k] = F 0.05 [2, 12] = 3.89.
QUESTION 11
(a) State the criteria for model selection and provide the reason for your choice.
(b). If a function is assumed to be in the form:
100 b1
=b 0 +
50−Q P
Use the following pairs of observation:
P 5 2 0.5 0.25 0.2
Q 0 10 20 30 40
To estimate:
(i) The parameters of the function by OLS
(ii) The product moment correlation coefficient and interpret your result
Page 4 of 5
Page 5 of 5
