Application for PhD in Economics
Entry questions to apply for PhD in Economics
Level 1
Question 1
1. Weekly wages are known to be normally distributed with a standard deviation of £5.10. An economist claims that the mean weekly income in this industry is £70.40. A random sample of 35 workers yields a mean income of £75.20.
a) What null and alternative hypothesis would you specify?
b) Generate a 95% confidence interval for the sample mean.
c) Use a classical hypothesis test at the 5% level of significance to test the null hypothesis.
Question 2
You are a member of a team of scientific advisors considering whether genetic modification of crops has any health consequences for the population. You set up the issue as one of hypothesis testing:
a) What would be your null and alternative hypothesis
b) Explain what Type I and Type II errors are in this context
c) Outline the costs involved in making Type I and Type II errors
Question 3
The variable smokes is a binary variable equal to one if a person smokes, and zero
otherwise. Using the data on 807 individuals on 10 variables:
- educ: years of schooling
- cigpric: state cig. price, cents/pack
- white: =1 if white
- age: in years
- income: annual income, $
- cigs: cigs. smoked per day
- restaurn: =1 if the person lives in a state with restaurant smoking restrictions, the following equation is estimated:
Both the usual and heteroskedasticity robust standard errors are reported.
a) Are there any important differences between the two sets of standard errors?
b) Holding other factors fixed, if education increases by four years, what happens to the estimated probability of smoking?
c) At what point does another year of age reduce the probability of smoking?
d) Interpret the coefficient on the binary variable restaurn.
Question 4
Consider an equation to explain salaries of CEOs in terms of annual firm sales, return on equity (roe, in percent form), and return on the firm’s stock (roe, in percent form):
a) By what percent is salary predicted to increase, if ros increases by 50 points? Does ros have a practically large effect on salary?
b) Test the null hypothesis that ros has no effect on salary, against the alternative that ros has a positive effect. Carry out the test at the 10% significance level.
c) Would you include ros in a final model explaining CEO compensation in terms of firm performance? Explain.
Question 5
Which of the following can cause the usual OLS t statistics to be invalid (that is, not to have t distributions under H0)?
a) Heteroskedasticity.
b) A sample correlation coefficient of 0.95 between two independent variables that are in the model.
c) Omitting an important explanatory variable.
LEVEL 2
Question 1
List and explain Gauss-Markov assumptions.
Question 2
Explain what is heteroskedasticity and how the problem of heteroskedasticity might be resolved.
Question 3
Which measures of goodness of fit for the regression models do you know? Discuss their appropriateness for specific models.
Question 4
What is the model misspecification and how could it be resolved?
Question 5
What is consistency of OLS model?
Question 6
In macroeconomics, the business cycle refers to …
A) Fluctuations in the general price level.
B) Fluctuations in the level of output.
C) Fluctuations in inflationary expectations.
D) Fluctuations in government expenditures.
Question 7
If the central bank of a country decides to reduce the short-term interest rates, this likely means that…
A) The economy is booming, and the central bank is trying to cool it down.
B) The central bank is worried about the value of the domestic currency and wants to boost it.
C) The central bank is worried about an imminent recession and wants to boost output.
D) The central bank is worried about inflation and wants to stop it.
Question 8
The exchange rate between the domestic and a foreign currency is determined by…
A) The relative tax rates of the countries involved.
B) The monetary strength of the countries involved.
C) The law of supply and demand.
D) The political regime of the countries involved.
Question 9
Which of the following is not different between the Solow and Malthus models?
A) Population growth is exogenous.
B) The production function has decreasing marginal returns.
C) There is capital accumulation.
D) Households save.
Question 10
The marginal product of a factor of production
A) is equal to the ratio of the amount of that factor of production to the amount of output produced.
B) is equal to the amount of additional output that can be produced with one additional unit of each factor input.
C) is equal to the amount of additional output that can be produced with one additional unit of that factor input, holding constant the quantities of the other factor inputs.
D) always exceeds the average product of that factor input, holding constant the quantities of the other factor inputs.
Question 11
Which of the following is not a characteristic of a perfectly competitive industry?
A) The industry consists of many small firms producing similar products.
B) There is no government intervention in the industry.
C) Producers set the price of the products freely.
D) Economic profit is driven to almost zero due to competition.
Question 12
Two points on the same indifference curve represent the same…
A) Price level
B) Income level
C) Capital level
D) Utility level
Question 13
Elasticity in economics is:
A) A term that is used to describe the degree of flexibility in wages.
B) A measure of responsiveness.
C) A relative difference in price and marginal cost.
D) An index used to measure market competitiveness.
Question 14
For a rational consumer who has to choose between two goods in the context of budget constraints, the price change of one of the goods, caeteris paribus, will determine:
A) A parallel shift of the budget line to the left.
B) A change in the slope of the budget line.
C) No change in the budget line.
D) A parallel shift of budget line to the right.
Question 15
Which of the following statements are false?
A) Information, the entrepreneur's ability, technical progress are neo-factors of production.
B) According to the stages of the circular flow of the company's capital, it takes three forms: money, capital goods and commodity.
C) Fixed capital depreciation is only due to physical deterioration.
D) The factors of production are resources attracted and used in economic activity.
LEVEL 3
Question 1
Explain the concept of “moral hazard” in Economics.
Question 2
What is self-selection and how might it be addressed in economic research?
Question 3
Explain the role of human capital, knowledge, technology, entrepreneurship, and innovation in economic growth and development?
Question 4
Why do economists use mathematic models?
Question 5
Explain the difference between correlation and causation in your own words.