Question: 2. (20) Consider the savings function where sav and inc stand for saving and income, e is a random variable with E(e)0 and Var(e- .

2. (20) Consider the savings function where sav and inc stand

2. (20) Consider the savings function where sav and inc stand for saving and income, e is a random variable with E(e)0 and Var(e- . Assume that e is independent of inc. (a) (5) Show that E(ulinc)-0, so that the key zero conditional assumption of the error term is satisfied (b) (10) Show that Var (uline)- inc. Does the variance of error term increase or decrease with inc increases? (c) (5) Is the error term homoskedastic or heteroskedastic? 2. (20) Consider the savings function where sav and inc stand for saving and income, e is a random variable with E(e)0 and Var(e- . Assume that e is independent of inc. (a) (5) Show that E(ulinc)-0, so that the key zero conditional assumption of the error term is satisfied (b) (10) Show that Var (uline)- inc. Does the variance of error term increase or decrease with inc increases? (c) (5) Is the error term homoskedastic or heteroskedastic

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