1) If OLS is used in the presence of heteroscedasticity, which of the following will be likely consequences? (10 points)

(i) Coefficient estimates may be misleading.

(ii) Hypothesis tests could reach the wrong conclusions

(iii) Forecasts made from the model could be biased

(iv) Standard errors may inappropriate.

2) If a regression equation contains an irrelevant variable, the parameter estimates will be (10 points)

(a) Consistent and unbiased but inefficient

(b) Consistent and asymptotically efficient but biased

(c) Inconsistent

(d) Consistent, unbiased and efficient.

3) If a regression equation omits an important variable, the parameter estimates will be (10 points)

(e) Consistent and unbiased but inefficient

(f) Consistent and asymptotically efficient but biased

(g) Inconsistent

(h) Consistent, unbiased and efficient.

4) The value of the DurbinWatson test statistic in a regression with 4 regressors (including the constant term) estimated on 100 observations is 3.6. What might we suggest from this? (10 points)

(a) The residuals are positively autocorrelated

(b) The residuals are negatively autocorrelated

(c) There is no autocorrelation in the residuals

(d) The test statistic has fallen in the intermediate region.