You Have Obtained Data on Test Scores and Student-Teacher Ratios

question 45

Essay

You have obtained data on test scores and student-teacher ratios in region A and region B of your state. Region B, on average, has lower student-teacher ratios than region A. You decide to run the following regression.
Y_i = β₀+ β₁X_1i + β₂X_2i + β₃X_3i+u_i
where X₁ is the class size in region A, X₂ is the difference between the class size between region A and B, and X₃ is the class size in region B. Your regression package shows a message indicating that it cannot estimate the above equation. What is the problem here and how can it be fixed? Explain the problem in terms of the rank of the X matrix.

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