INTRODUCTION TO ECONOMETRICS II ECO 306 NOUN 133 1.) Simple macroeconomic model consists of a consumption function
and an income identity where
C is aggregate consumption,
I isaggregate
investment,
Y is aggregate income, and
u is a disturbance term.
On the assumption that I is exogenous, derive the
reduced form equations for C and
Y.
2.) From the model above, demonstrate that OLS would yield inconsistent results if used to
fit the consumption function, and investigate the direction of the bias in the slope coefficient.
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