QUESTION 1 Consider the following regression model: y = Bo + 31x1 + ... + Bkxk + u, j=0, 1, ..., k. Which of the following statements is correct? If x; is correlated with u for any reason, then x; is said to be an endogenous explanatory Oa. variable. An explanatory variable in a multiple regression model can be correlated with the "error term because of an omitted variable. An explanatory variable in a multiple regression model can be correlated with the error term because of simultaneity. Od. All of the above. QUESTION 2 Consider the following regression model: y = Bo + B1x1 + B2x2 + u (1), where the explanatory variable x, is suspected of being endogenous (correlated with u) and the explanatory variable x2 is exogenous (uncorrelated with u). Further consider the following regression model: X, = To + Itz + 12x2 + v (2), where m1 = 0 and Cov(z,u) = 0. Which of the following statements is correct? aWe call z an instrumental variable (IV) for x1. Ob. We call equation (1) the reduced form equation. Oc. We call equation (2) the structural equation. Od. All of the above