G. Menges developed the following econometric model for the West German economy: where Y = national income
Question:
where Y = national income
I = net capital formation
C = personal consumption
Q = profits
P = cost of living index
R = industrial productivity
t = time
u = stochastic disturbances
a. Which of the variables would you regard as endogenous and which as exogenous?
b. What is the reason behind including the variable P in the consumption function?
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