When an Error Term Is Added to an Economic Model

question 6

Multiple Choice

When an error term is added to an economic model and assumptions about the distribution of the error term are made,the resulting model is ______________.

• A)fallacious,you should not make assumptions about error terms.
• B)an econometric model that can be estimated and used for inference.
• C)misspecified due to missing information.
• D)heteroskedastic since error terms are no longer random.

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Definitions:

International Monetary Fund

An international organization that aims to promote global economic stability and growth by providing monetary cooperation and financial assistance to its member countries.

Trade Among Participating Countries

The exchange of goods and services between member countries under agreed terms.

Charitable Giving

The act of donating money, goods, or time to support non-profit organizations or causes, often as part of corporate philanthropy or individual philanthropy efforts.

Economic Recession

A period of temporary economic decline during which trade and industrial activities are reduced, often identified by a fall in GDP in successive quarters.