Question: II. Suppose that the true consumption function for a certain district Yi = Bot BIX1+ B2X2 + B3X3 + ui. Where Y= total consumption; X,:

II. Suppose that the true consumption function for a certain district

II. Suppose that the true consumption function for a certain district Yi = Bot BIX1+ B2X2 + B3X3 + ui. Where Y= total consumption; X,: income of rural areas; X2: income of urban areas; X,: income tax You establish that, a priori, the marginal propensity to consume is equally distributed between the urban and rural areas. How would you use the a priori information to estimate this model to avoid the problem of multicollinearity between X, and X2 [3 marks]

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

3 COLLEGE ALGEBRA - TRIGONOMETRY Business and Finance (MAT115) This course will start with a review of basic algebra (factoring, solving linear equations, and equalities, etc.) and proceed to a study...

4 Files 3:17 PM Fri May 13 Insert Draw Layout Review View Unit SMacroeconomic Policy Name: HR: POLICY BASICS Use the space below to take notes during class. The Federal Reserve: Monetary Policy:...

4 Files 3:18 PM Fri May '13 Insert Draw Layout Review View Unit SMacroeconomic Policy Name: HR: FISCAL POLICY Use the space below to take notes during class. Disposable Income: How does a change in...

2. A local government is trying to decide whether to build a school that will jointly serve two neighborhoods. The school will cost one million dollars to build. Neighborhood 1 values the school at...

STAB22H3 Statistics I 2020 1.A researcher used a linear regression model to investigate the relationship between sexually transmitted disease rate (y) and poverty rate (x) in the U.S.A. The...

can someone solve this Modern workstations typically have memory systems that incorporate two or three levels of caching. Explain why they are designed like this. [4 marks] In order to investigate...

Econ 119-Final Exam solutions. Friday, December 20, 2013. Problem 1: (50 points) True/False, Multiple Choice, and Short Answer. Answer all of the following short-answer, multiple-choice, and...

Hypothetical story At a manufacturing company, representatives from management and from the labor union are having difficulty agreeing on the wage increase in next year's contract. One uncertainty...

Give Correct ANSWERS Human-Computer Interaction (a) If you had been one of the original inventors of the WIMP interface, and engineers on the technical team had been sceptical about the advantages...

STATISTICS FOR DECISION MAKING Dr. Azar Abizada HOMEWORK 4 Due Date: Wednesday, March 11th class time Problem 1 (26 points): Be careful, each part of this question is independent of one another. a)...

Use basic trigonometry and a calculator to determine value of x a) X 40% 50 90 mm b) Nelson: Principles of Mathematics 10 x 39 51% 30 cm

Suppose Clancy runs a small business that manufactures frying pans. Assume that the market for frying pans is a price-taker market, and the market price is $10 per frying pan. The following graph...

You are turning 2 1 , and your bank account balance is \ ( \ $ 3 4 \ ) thousand. Your account is earning \ ( 7 \ % \ ) per year compounded quarterly. How much will you have in the account when you...

Calculating payments the Thunder Dan Corporation??s purchases from suppliers in a quarter are equal to 75 percent of the next quarter??s forecast sales. The payables period is 60 days. Wages, taxes,...

Calculating the Cash Budget here are some important figures from the budget of Nashville Nougats, Inc., for the second quarter of 2006. The company predicts that 5 percent of its credit sales will...

Sustainable Growth and Outside Financing Youve collected the following information about Bad Company, Inc.: Sales = $170,000 Net income = $16,000 Dividends = $11,500 Total debt = $120,000 Total...

Calculating Annuity Values If you deposit $3,000 at the end of each of the next 20 years into an account paying 10.5 percent interest, how much money will you have in the account in 20 years how much...

Calculating Annuity Values Dinero Bank offers you a $30,000, seven-year term loan at 8 percent annual interest. What will your annual loan payment be?

this 1. As a leader, it's important for you to understand that new employees often experience culture shock and anxiety when they first enter organizations, especially if their expectations are not...

What does this look like?

1. The purpose of this chapter is to describe the key principles, procedures and strategies of personal communication benchmarking, as understood in this context.

1. Set a personal goal for yourself in your work situation. Examine this goal in the light of the 10 factors to achieve goals.