Consider the standard simple regression model at the country level Investment = 0 +1Income + u under the Gauss-Markov Assumptions. Assume that we are in a open economy case (Income (Y) = consumption + Investment + Government spending + Exports. Notice that exports can take any value, positive or negative) Let 1 be the estimator of 1 obtained by assuming the intercept is zero.

(a) Does it make sense to assume that 0 = 0 in this case? Why?

(b) Derive an estimator for 1 assuming 0 = 0.

(c) Calculate the bias in case 0 = 0.