The Following Simple Model Is Used to Determine the Annual

question 22

Multiple Choice

The following simple model is used to determine the annual savings of an individual on the basis of his annual income and education. Savings = The variable 'Edu' takes a value of 1 if the person is educated and the variable 'Inc' measures the income of the individual.
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Refer to the model above. The inclusion of another binary variable in this model that takes a value of 1 if a person is uneducated, will give rise to the problem of _____.

• A)omitted variable bias
• B)self-selection
• C) dummy variable trap
• D) heteroskedastcity

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Definitions:

Investing

The act of allocating resources, typically money, with the expectation of generating an income or profit.