Consider the following simple regression model y = 
0 + 1x1 + u. Suppose z is an instrument for x.
Which of the following statements is true?
A. The condition Cov(z,u) = 0 can be tested statistically.
B. The condition Cov(z,x) 
0 cannot be tested statistically.
C. The instrumental variables estimator is always biased if Cov(x,u) 
0.
D. The ordinary least squares estimator is unbiased if Cov(x,u) 
0 .
Answer: C
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If a country operates on its PPF, it achieves production efficiency
Indicate whether the statement is true or false
Ration coupons are often associated with price ceilings because they
a. substitute for dollars in the purchase of goods b. restore prices to equilibrium c. compensate for the producers' lost opportunities d. are used to allocate goods under conditions of excess demand e. enable producers to produce beyond equilibrium levels without suffering the consequences of lowering prices
If the income effect counteracts the substitution effect, we know that the good in question is a(n)
a. complementary good. b. inferior good. c. luxury good. d. normal good.
Figure 5-6
A shift in the budget line in Figure 5-6 from AB to AC indicates
a.
the price of wine coolers has risen.
b.
income has increased.
c.
the price of beer has fallen.
d.
the price of wine coolers has fallen.
e.
All of the above are correct.