Problem 3 (30 points) 1) Explain what is panel data and how it differs 'om cross-sectional data. Fit 2 .80 + 500215 + Iglxit + lQt + \"it 2) See the equation above. Subscript 1' refers to a person subscript 1' refers to the time period (year). a and uit are unobserved components of the error term. You need to obtain a consistent estimate of [31. If you estimate the equation by pooled OILS, what assumptions about ai and uityou need to make to obtain a consistent estimate? 3) Suppose now that ai is correlated with x while u\" is uncorrelated with xit. Explain how rst difference model and xed effects model help to obtain consistent estimate of B1 in this case. 4) Suppose that you want to estimate the effect of race on wages using individual-level panel data. Would you prefer to use pooled OLS or xed effects model for this purpose? Explain. 5) What is the potential problem with standard errors of the coefcients in the pooled OLS model