Assume That a Simple Economy Could Be Described by the Following

question 59

Essay

Assume that a simple economy could be described by the following system of equations,
Ct = β0 + β1Yt + ui
It = ,
where C is consumption,Y is income,and I is investment.(This may be a primitive island society which does not trade with other islands.There is no government,and the only good consumed and invested (saved)is sunflower seeds. )
Assume the presence of the GDP identity,Y = C + I.If you estimated the consumption function,what sort of problem involving internal validity may be present?

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Definitions:

Late-Selection Model

A theory in cognitive psychology suggesting that the selection of information for final processing occurs late in the processing sequence.

Acoustic-Blocking Model

A theoretical hypothesis suggesting interference in the processing of sounds or verbal information can impede learning or comprehension.

Retrieval

Retrieving and elevating stored information into one's consciousness from memory.

Encoding

The process by which information is transformed into a format that can be stored in memory, an initial step in the creation of a memory trace.