# B.Com 3 Semester Economic Theory & Applications

Economic Theory & Applications
Q1. Explain briefly the difference between a sharp and a fuzzy discontinuity design (you do not need to explain how estimation would proceed in each case; just describe the kind of situation that would give rise to a sharp RDD and a fuzzy one).
Q2. Given the model Yi= β0+ β1X1i+ β2X2i + β3X3i +ui, where you know that E[ui|X]=0, imagine that you estimate instead the “incomplete” model Yi= β0+ β1X1i +u*i. Under what conditions will the OLS estimator of β1 be inconsistent?
Q3. Could you test that the instruments (Z1i, Z2i y Z3i) are exogenous? If your answer is yes, how would you do it? If not, why?
Q4. How could you check whether the instruments are weak? Explain.
Q5. You want to estimate whether there is a relationship between gender and smoking at your university. You collect data for a random sample of 200 students and run a linear probability model, a probit model and a logit model, where the dependent variable is a binary indicator for whether an individual smokes, and the main explanatory variable is a dummy variable indicating males (you also include other controls such as age). Your estimated coefficients are 0.084 in the LMP, 0.688 in the probit model, and 0.389 in the logit model. In spite of these large differences, all three models yield similar estimates of the marginal effect of gender on the probability of smoking. How can this be?
Q6. What is meant by marginalisation and conditioning in the process of model reduction within the dynamic modelling tradition?
Q7. Define the term’s weak stationarity, Integrated of order one and uniform mixing. How would you asses the stationarity of a variable X.
Q8. When does non-stationary data not give rise to the problems of a spurious regression.

Case Study
In “The Power of Political Voice: Women’s Political Representation and Crime in India”, Lakshmi Iyer and her coauthors study the effect of political representation among under-represented social groups on crimes committed against members of the disadvantaged group. In particular, they study the impact of increased female representation in local governments on crimes against women in India.
Q1. Do you expect the “true” causal effect of interest to be positive, negative, or about zero? Why?
Q2. Suppose that they collected (observational) data across different Indian municipalities in a given year (say, 2005) on the fraction of women in the local council and the annual number of crimes against women (normalized by population). They could then run an OLS regression where crime would be the dependent variable and the fraction of women the main explanatory variable. Do you think a simple OLS regression with no additional regressors would answer the causal question of interest? Explain why such an OLS estimate would be biased, and in which direction you think the bias would go.
Q3. Describe one variable that should be included in the regression and explain why.
MCQ
1. A qualitative forecast
2. Which of the following is not a qualitative forecasting technique?
3. The first step in time-series analysis is to
4. Forecasts are referred to as naive if they
5. Time-series analysis is based on the assumption that
6. Which of the following is not one of the four types of variation that is estimated in time-series analysis?
7. The cyclical component of time-series data is usually estimated using
8. In time-series analysis, which source of variation can be estimated by the ratio-to-trend method?
9. If regression analysis is used to estimate the linear relationship between the natural logarithm of the variable to be forecast and time, then the slope estimate is equal to
10. The use of a smoothing technique is appropriate when
11. The greatest smoothing effect is obtained by using
12. The root-mean-square error is a measure of
13. Barometric methods are used to forecast
14. A leading indicator is a measure that usually
15. If 3 of the leading indicators move up, 2 move down, and the remaining 6 are constant, then the diffusion index is
16. A single-equation econometric model of the demand for a product is a ________ equation in which the quantity demanded of the product is an ________ variable.
17. A reduced form equation expresses
18. Trend projection is an example of which kind of forecasting?
19. Turning points in the level of economic activity can be forecast by using
20. Econometric forecasts require
21. Which of the following is an example of a capital input?
22. Which of the following is an example of an intermediate product?
23. Which of the following is an assumption associated with the definition of a production function?
24. The marginal product of labor is equal to
25. The average product of labor is equal to
26. The output elasticity of labor is
27. The point of inflection on the total product curve corresponds to the level of output where
28. The law of diminishing returns
29. Stage II of production begins at the point
30. The marginal revenue product of labor for a firm
31. An isoquant that is
32. The absolute value of the slope of a convex isoquant
33. The combination of inputs is optimal
34. An isocost line will be shifted further away from the origin
35. If isoquants are plotted on a graph with capital measured on the vertical axis and labor on the horizontal axis, then an increase in the wage rate will cause the isocost line
36. A line that connects all points where the marginal rate of technical substitution is equal to the ratio of input prices is called the
37. Suppose that three isoquants that represent 10, 20, and 30 units of output are plotted on a graph and a straight line is drawn from the origin through the isoquants. If the portion of the line between the isoquants that represent 10 and 20 units of output is longer than the portion of the line between the isoquants that represent 20 and 30 units of output, then the firm represented by these isoquants
38. If the output elasticities of all inputs used by a firm are summed together, then the total
39. Which of the following is not a characteristic of production technologies that can be described by the Cobb-Douglas production function?
40. If the marginal product of labor is 2, the marginal product of capital is 4, the wage rate is \$3, the rental price of capital is \$6, and the price of output is \$1.50, then the firm should

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