Misspecification of functional form of the regression function
A) is overcome by adding the squares of all explanatory variables.
B) is more serious in the case of homoskedasticity-only standard error.
C) results in a type of omitted variable bias.
D) requires alternative estimation methods such as maximum likelihood.
Answer: C
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The mechanism that normally coordinates what goes on in an economy is the
A) government. B) Federal Reserve. C) price system. D) stock market.
Suppose the Federal Reserve announces that it will be making a change to a key interest rate to decrease the money supply. This is likely because the Federal Reserve is
a. worried about inflation. b. worried about unemployment. c. hoping to increase the demand for goods and services. d. worried that the economy is growing too slowly.
Suppose the actual and expected price levels in an economy are initially equal. However, the actual price level falls eventually due to a change in economic conditions. Which of the following will occur over the long run??
a. The economy will move rightward along the short-run aggregate supply curve.
b. The economy will move leftward along the short-run aggregate supply curve.
c. The short-run aggregate supply curve will shift to the right.
d. The short-run aggregate supply curve will shift to the left.
e. The short-run aggregate supply curve will become flatter.
Suppose autonomous consumption increases. This increase in autonomous consumption will cause which of the following to occur?
A. The consumption function shifts up. B. The consumption function becomes less steep. C. The consumption function shifts down. D. The consumption function becomes steeper.