Economics Study Material and Solved Assignments

ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

ECONOMICS1
Table of Contents
Question 1..................................................................................................................................3
Question a...............................................................................................................................3
Question b..............................................................................................................................3
Question c...............................................................................................................................3
Question 2..................................................................................................................................4
Question a...............................................................................................................................4
Question b..............................................................................................................................4
Question c...............................................................................................................................4
Question d..............................................................................................................................4
Question 3..................................................................................................................................5
Question a...............................................................................................................................5
Question b..............................................................................................................................5
Question c...............................................................................................................................5
Question d..............................................................................................................................5
Question 4..................................................................................................................................6
Question a...............................................................................................................................6
Question b..............................................................................................................................6
Question c...............................................................................................................................6
Question d..............................................................................................................................6
Question 5..................................................................................................................................7

ECONOMICS2
Question a...............................................................................................................................7
Question b..............................................................................................................................7
Question c...............................................................................................................................7
Question d..............................................................................................................................8
Question e...............................................................................................................................8
References..................................................................................................................................9

ECONOMICS3
Question 1
Question a
Stationary series are those for which important statistical properties such as mean,
variance, covariance, autocorrelation and other do not vary with time rather stay constant.
Stationarity can be detected either by visual plot or by performing statistical test.
From the time series plot it is possible to identify whether mean and variances vary over time
or not. Stationarity can also be examined by conducting unit root test (Chatfield 2016).
Augmented Dicky Fuller test is the most commonly used test for stationarity.
One common method of fixing the problem of stationarity to take differences of the
series. It is typically performed eliminate the presence of time-dependent mean.
Question b
Serial correlation refers to the relationship between a variable and lagged version of
the variable over different time interval. Repeating patter of the variable often results in serial
autocorrelation where level of a variable affects its future value.
In the presence of serial autocorrelation OLS estimators though remain unbiased but
is violates the property of minimum variance. The OLS estimates thus no longer is efficient.
Question c
In order to fix serial autocorrelation, one method to estimate the model is to use
Generalized Least Square method (Chen 2016). By transforming the model into a well-
behaved model, GLS provides a more robust result compare to OLS or WLS.