Consider the Following Simple Regression Model: Y = β₀+ β₁x₁

question 2

Multiple Choice

Consider the following simple regression model: y = β₀+ β₁x₁+ u.Suppose z is an instrument for x.Which of the following conditions denotes instrument exogeneity?

• A)Cov(z,u)> 0
• B)Cov(z,x)> 0
• C)Cov(z,u)= 0
• D)Cov(z,x)= 0

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Definitions:

Discouraged Workers

Individuals who are not actively looking for work because they believe no jobs are available for them or there are none for which they would qualify.

Unemployment Insurance

A state-funded initiative offering monetary support to people unemployed due to circumstances beyond their control.

Nominal Interest Rate

Nominal interest rate is the stated or face interest rate on a loan or financial product, not adjusted for inflation, representing the actual percentage charged on the principal amount.

Expected Rate

The anticipated return on an investment, often based on historical performance and future projections.