Why Is a Random Error Term Included in an Econometric

question 1

Multiple Choice

Why is a random error term included in an econometric model?

• A)because many economic models have not been well developed yet and need to allow for inaccuracies
• B)because some people are irrational
• C)because there is intrinsic uncertainty in any economic activity due to individual decision making
• D)because most estimating techniques are not well suited to work with a deterministic model.

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Definitions:

Co-agent

An individual or entity appointed alongside another agent to act on behalf of a principal, sharing responsibilities and authority.

Apparent Authority

Refers to a situation where a person appears to have the authority to act on behalf of another, leading third parties to reasonably believe that authority exists.

Communications

The process of sending, receiving, and interpreting information through any number of channels.

Third Party

An entity not directly involved in a transaction or agreement but who may be affected by it or have interests in its outcome.