Question

(1)What are the ASSUMPTIONS of the Classical Model in
econometrics? What happens when each of the assumptions are
violated?

Answers are provided in chapter 4 of the required text book
for the class. The title of the chapter is

“ The Classical Model”

Answer #1

Assumptions:

i) The regression model is linear in the coefficients and the error term.

ii) The error term has a population mean of zero.

iii) All independent variables are uncorrelated with the error term.

iv) Observations of the error term are uncorrelated with each other.

v) The error term has a constant variance.

vi) No independent variable is a perfect linear function of other explanatory variables

vii) The error term is normally distributed.

If these assumptions hold true, the OLS leads to the best possible estimates. However, if the assumptions are violated, this results in bias in the parameter estimates. OLS is no longer the most efficient estimator and Standard errors may no longer remain unbiased.

1. Show what happens to Y and r using the IS-LM model when
a) There is a decrease in money demand
b) Congress reduces government spending
c) There is an increase in consumption spending by househol

According to the monetary model, what happens when there is a
fall in real income?

What did Keynes say the Classical postulates were? Illustrate
each using the IS-LM model.

What did Keynes say the Classical postulates were? Illustrate
each using the IS-LM model.

1. What happens to the ARL when then increases?
2. What happens to the ATS when then increases?
3. What happens to the ARL when the shift increases?

Question: 1 Classical Model: The Long Run 1.1 Open Economy Solve
for the following Y, W P , L, C, I, Nx, r,...
1 Classical Model: The Long Run 1.1 Open Economy Solve for the
following
Y, W P , L, C, I, Nx, r, i, Md ,
when 1. Labor supply increases
ansewer key
1. L s ?,? (W/P) ?
2. L ?? Y ?, ? S ?, ? r ?
3. r ?,? C, I ?
4. r...

1. In the Classical Model individuals only hold cash in order to
satisfy the transactions demand for money. Explain. What does this
imply as far as the market for goods and services is concerned?
2. With fully flexible wages, prices and interest rates the
economy always settles at the full employment level of GDP.
Explain.
3. What form of unemployment is consistent with the Classical
Model?
4. Provide a brief explanation of the Quantity Theory of
Money.
5. Why is...

Check the boxes for the predictions of what happens in the
neoclassical model when TFP or A increases:
C increases
Y increases
S decreases
L increases
r decreases
W/P decreases

List all 5 assumptions of the median voter model. (1 sentence
each) Also, explain the main implication of this model for
political elections. (about 3 sentences)

CLASSICAL LINEAR REGRESSION MODEL
Suppose you can construct a sample that includes 4 second grade
students in different elementary schools. Data have been collected
on each students’ name, gender, class size( total number of
students in the class) and final math scores.
With data available, calculate all estimators of your model step
by step. Note: You need to show how you calculate with details, IN
EXCEL
ID
Name
Gender
Class
MathScores
1
John
M
23
80
2
Bella
F
16...

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