Question 1

Which of the following correctly highlights a limitation of applying simultaneous equation models to time series data?

Accepted Answer

A)  Most time series have variables with a unit root and 2SLS is complicated when applied to equations with such variables.
B)  2SLS estimates are inefficient when applied to variables that are not in their levels but in first differences.
C)  It is difficult to form simultaneous equations which satisfy the rank and order conditions using time series data.
D)  The problem of serial correlation greatly limits the efficiency of simultaneous equation models and leads to inefficient estimations.E) A) and B)
F) A) and C)

Question 2

The instrumental variables in the two stage least squares estimation method consists of endogenous variables appearing in either equation.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following equations is an overidentified equation?​

Accepted Answer

A)  ​y1 = α12y2 + α13y3 + β11z1 + u1
B)  ​y2 = α21y1 + β21z2 + β23z3 + u2
C)  ​y3 = α32y1 + β31z1 + β32z2 + β33z3 + β34z4 + u3
D)  ​y1 = β10 + α1y2+ z1β1 + u1E) All of the above
F) A) and D)

Question 4

Which of the following is a method which can be used for estimation in simultaneous equations models?

Accepted Answer

A)  Feasible generalized least squares estimation
B)  Prais-Winsten transformation
C)  Cochrane-Orcutt transformation
D)  Two stage least squares estimationE) A) and B)
F) None of the above

Question 5

In econometrics, simultaneity arises when:

Accepted Answer

A)  strictly exogenous explanatory variables determine the dependent variable through a step-by-step process.
B)  the error term is correlated with both the dependent variable and explanatory variables.
C)  one or more of the explanatory variables is jointly determined with the dependent variable.
D)  both serial correlation and heteroskedasticity are present in an hypothesized model.E) A) and B)
F) A) and D)

Question 6

OLS is biased and inconsistent when applied to a structural equation in a simultaneous equations system.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following correctly identifies a characteristic of structural equations?

Accepted Answer

A)  A structural equation should contain equal number of dependent and independent variables.
B)  A structural equation should contain equal number of endogenous and exogenous variables.
C)  A structural equation should have a behavioral, ceteris paribus interpretation on its own.
D)  A structural equation should not contain structural errors.E) None of the above
F) B) and D)

Question 8

Exclusion restrictions are said to be imposed in a two-equation simultaneous equations model if it is assumed that:

Accepted Answer

A)  certain exogenous variables do not appear in the first equation and others are absent from the second equation.
B)  certain endogenous variables do not appear in the first equation and others are absent from the second equation.
C)  the error terms in each equation is correlated with the exogenous variables.
D)  the error terms in each equation is uncorrelated with the exogenous variables.E) A) and D)
F) A) and C)

Question 9

If a structured model contains a time trend-which may capture exogenous, trending factors that are not directly modeled-then the trend acts as its own instrumental variable.

Accepted Answer

A) True 
 B)False

Question 10

The following equations represent a two-equation model:​ y1 = β10 + α1y2 + z1β1 + u1
Y2 = β20 + α2y1 + z2β2 + u2
Where, y1 and y2 are the:

Accepted Answer

A)  ​endogenous variables.
B)  ​structural error terms.
C)  ​exogenous variables.
D)  ​intercepts.E) B) and C)
F) A) and D)

Question 11

The rank condition for identification of a structural equation states that the first equation in a two-equation simultaneous equations model is identified if, and only if:

Accepted Answer

A)  the first equation contains at least one exogenous variable (with a nonzero coefficient)  that is excluded from the second equation.
B)  the first equation contains at least two exogenous variables (with a nonzero coefficient)  that are excluded from the second equation.
C)  the second equation contains at least one exogenous variable (with a nonzero coefficient)  that is excluded from the first equation.
D)  the second equation contains at least two exogenous variables (with a nonzero coefficient)  that are excluded from the first equation.E) B) and D)
F) A) and B) C

Question 12

In a simultaneous equations model, if any variable is determined outside of the model, then it is considered a(n) :​

Accepted Answer

A)  ​endogenous variable.
B)  ​random variable.
C)  ​exogenous variable.
D)  ​error variable.E) B) and C)
F) A) and D)

Question 13

The order condition is a necessary and sufficient condition for identification of an equation in a simultaneous equations model.

Accepted Answer

A) True 
 B)False  False

Question 14

An alternative to using simultaneous equation models with panel data is:

Accepted Answer

A)  to use OLS estimates after first differencing the data.
B)  to use fixed effects transformation on the equations and then apply 2SLS.
C)  to convert the equations into reduced form and then apply feasible generalized least squares.
D)  to convert the equations into reduced form and then apply OLS.E) A) and B)
F) B) and C)

Question 15

Which of the following statements is true?

Accepted Answer

A)  The use of 2SLS is applicable to simultaneous equations model with at most two equations.
B)  Identification of simultaneous equations with three or more equations is based on matrix algebra.
C)  2SLS method used in the estimation of simultaneous equations is an example of a system estimation method.
D)  The maximum number of equations permissible for a simultaneous equations model is four.E) A) and B)
F) A) and C)

Question 16

​The number of overidentifying restrictions equals the total number of exogenous variables in the system plus the total number of explanatory variables in the equation.

Accepted Answer

A) True 
 B)False

Question 17

An equation in the simultaneous equations model satisfies the order condition for identification if:

Accepted Answer

A)  the number of excluded endogenous variables from the equation is at most as large as the number of right-hand side exogenous variables.
B)  the number of excluded endogenous variables from the equation is at least as large as the number of right-hand side exogenous variables.
C)  the number of excluded exogenous variables from the equation is at most as large as the number of right-hand side endogenous variables.
D)  the number of excluded exogenous variables from the equation is at least as large as the number of right-hand side endogenous variables.E) None of the above
F) A) and B)

Question 18

The following equations represent a simultaneous equations model: K1 = 1 =   1K2 +   1z1 + u1 K2 =   2K1+   2z2 + u2 OLS will suffer from simultaneity bias if: A) u1 is correlated with z1. B) z1 is correlated with z2. C) K2 is correlated with u1. D) K1 is correlated with u1." class="answers-bank-image d-inline" rel="preload" > 1K2 + 1 =   1K2 +   1z1 + u1 K2 =   2K1+   2z2 + u2 OLS will suffer from simultaneity bias if: A) u1 is correlated with z1. B) z1 is correlated with z2. C) K2 is correlated with u1. D) K1 is correlated with u1." class="answers-bank-image d-inline" rel="preload" > 1z1 + u1
K2 = 1 =   1K2 +   1z1 + u1 K2 =   2K1+   2z2 + u2 OLS will suffer from simultaneity bias if: A) u1 is correlated with z1. B) z1 is correlated with z2. C) K2 is correlated with u1. D) K1 is correlated with u1." class="answers-bank-image d-inline" rel="preload" > 2K1+ 1 =   1K2 +   1z1 + u1 K2 =   2K1+   2z2 + u2 OLS will suffer from simultaneity bias if: A) u1 is correlated with z1. B) z1 is correlated with z2. C) K2 is correlated with u1. D) K1 is correlated with u1." class="answers-bank-image d-inline" rel="preload" > 2z2 + u2
OLS will suffer from simultaneity bias if:

Accepted Answer

A)  u1 is correlated with z1.
B)  z1 is correlated with z2.
C)  K2 is correlated with u1.
D)  K1 is correlated with u1.E) A) and D)
F) A) and C)

Question 19

Refer to the simultaneous equations model above. The reduced form error from the reduced form equation for K2 will be a:

Accepted Answer

A)  quadratic function of u1 and u2, and correlated with z1 and z2.
B)  quadratic function of u1 and u2, and uncorrelated with z1 and z2.
C)  linear function of u1 and u2, and correlated with z1 and z2.
D)  linear function of u1 and u2, and uncorrelated with z1 and z2.E) B) and D)
F) B) and C)

Question 20

The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Qi = i =   1Pi +   1zi1 + ui1 Qi =   2Pi +   2zi2 + ui2 Which of the following are the endogenous variables in this model? A) Pi, zi1, and zi2 B) Pi and Qi C) zi1, and zi2 D) ui1 and ui2" class="answers-bank-image d-inline" rel="preload" > 1Pi + i =   1Pi +   1zi1 + ui1 Qi =   2Pi +   2zi2 + ui2 Which of the following are the endogenous variables in this model? A) Pi, zi1, and zi2 B) Pi and Qi C) zi1, and zi2 D) ui1 and ui2" class="answers-bank-image d-inline" rel="preload" > 1zi1 + ui1
Qi = i =   1Pi +   1zi1 + ui1 Qi =   2Pi +   2zi2 + ui2 Which of the following are the endogenous variables in this model? A) Pi, zi1, and zi2 B) Pi and Qi C) zi1, and zi2 D) ui1 and ui2" class="answers-bank-image d-inline" rel="preload" > 2Pi + i =   1Pi +   1zi1 + ui1 Qi =   2Pi +   2zi2 + ui2 Which of the following are the endogenous variables in this model? A) Pi, zi1, and zi2 B) Pi and Qi C) zi1, and zi2 D) ui1 and ui2" class="answers-bank-image d-inline" rel="preload" > 2zi2 + ui2
Which of the following are the endogenous variables in this model?

Accepted Answer

A)  Pi, zi1, and zi2
B)  Pi and Qi
C)  zi1, and zi2
D)  ui1 and ui2E) B) and C)
F) A) and B)

Exam 16: Simultaneous Equations Models

Which of the following correctly highlights a limitation of applying simultaneous equation models to time series data?

Correct AnswerverifiedShow Answer

The instrumental variables in the two stage least squares estimation method consists of endogenous variables appearing in either equation.

Correct AnswerverifiedFalse

Which of the following equations is an overidentified equation?​

Correct AnswerverifiedShow Answer

Which of the following is a method which can be used for estimation in simultaneous equations models?

Correct AnswerverifiedShow Answer

In econometrics, simultaneity arises when:

Correct AnswerverifiedShow Answer

OLS is biased and inconsistent when applied to a structural equation in a simultaneous equations system.

Correct AnswerverifiedShow Answer

Which of the following correctly identifies a characteristic of structural equations?

Correct AnswerverifiedShow Answer

Exclusion restrictions are said to be imposed in a two-equation simultaneous equations model if it is assumed that:

Correct AnswerverifiedShow Answer

If a structured model contains a time trend-which may capture exogenous, trending factors that are not directly modeled-then the trend acts as its own instrumental variable.

Correct AnswerverifiedShow Answer

The following equations represent a two-equation model:​ y1 = β10 + α1y2 + z1β1 + u1 Y2 = β20 + α2y1 + z2β2 + u2 Where, y1 and y2 are the:

Correct AnswerverifiedShow Answer

The rank condition for identification of a structural equation states that the first equation in a two-equation simultaneous equations model is identified if, and only if:

Correct AnswerverifiedC

In a simultaneous equations model, if any variable is determined outside of the model, then it is considered a(n) :​

Correct AnswerverifiedShow Answer

The order condition is a necessary and sufficient condition for identification of an equation in a simultaneous equations model.

Correct AnswerverifiedFalse

An alternative to using simultaneous equation models with panel data is:

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

​The number of overidentifying restrictions equals the total number of exogenous variables in the system plus the total number of explanatory variables in the equation.

Correct AnswerverifiedShow Answer

An equation in the simultaneous equations model satisfies the order condition for identification if:

Correct AnswerverifiedShow Answer

The following equations represent a simultaneous equations model: K1 = 1K2 + 1z1 + u1 K2 = 2K1+ 2z2 + u2 OLS will suffer from simultaneity bias if:

Correct AnswerverifiedShow Answer

Refer to the simultaneous equations model above. The reduced form error from the reduced form equation for K2 will be a:

Correct AnswerverifiedShow Answer

The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Qi = 1Pi + 1zi1 + ui1 Qi = 2Pi + 2zi2 + ui2 Which of the following are the endogenous variables in this model?

Correct AnswerverifiedShow Answer

Correct Answer
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False

Which of the following equations is an overidentified equation?

Correct Answer
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The following equations represent a two-equation model: y₁ = β₁₀ ₊ α₁y₂ + z₁β₁ + u₁ Y₂ = β₂₀ ₊ α₂y₁ + z₂β₂ + u₂ Where, y₁ and y₂ are the:

Correct Answer
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C

In a simultaneous equations model, if any variable is determined outside of the model, then it is considered a(n) :

Correct Answer
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False

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The number of overidentifying restrictions equals the total number of exogenous variables in the system plus the total number of explanatory variables in the equation.

Correct Answer
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Correct Answer
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The following equations represent a simultaneous equations model: K₁ = ₁K₂ + ₁z₁ + u₁ K₂ = ₂K₁+ ₂z₂ + u₂ OLS will suffer from simultaneity bias if:

Correct Answer
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Refer to the simultaneous equations model above. The reduced form error from the reduced form equation for K₂ will be a:

Correct Answer
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The following simultaneous equations describe the demand and supply for a particular good in a competitive market. Q_i = ₁P_i + ₁z_i₁ + u_i₁ Q_i = ₂P_i + ₂z_i₂ + u_i₂ Which of the following are the endogenous variables in this model?

Correct Answer
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