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1. Explain the concept of endogeneity in the context of regression analysis. How can instrumental variables be used to address endogeneity? Provide an example to illustrate your explanation. 2. Consider a scenario where you are investigating the relationship between government spending and economic growth. Discuss potential sources of endogeneity in this relationship and propose a suitable instrumental variable that could be used to address this issue. Describe how you would verify the validity of your instrumental variable and its relevance to the research question.

1. Explain the concept of endogeneity in the context of regression analysis. How can instrumental variables be used to address endogeneity? Provide an example to illustrate your explanation. 2. Consider a scenario where you are investigating the relationship between government spending and economic growth. Discuss potential sources of endogeneity in this relationship and propose a suitable instrumental variable that could be used to address this issue. Describe how you would verify the validity of your instrumental variable and its relevance to the research question.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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1. Explain the concept of endogeneity in the context of regression analysis. How can instrumental variables be used to address endogeneity? Provide an example to illustrate your explanation. 2. Consider a scenario where you are investigating the relationship between government spending and economic growth. Discuss potential sources of endogeneity in this relationship and propose a suitable instrumental variable that could be used to address this issue. Describe how you would verify the validity of your instrumental variable and its relevance to the research question.
Transcribed Image Text:1. Explain the concept of endogeneity in the context of regression analysis. How can instrumental variables be used to address endogeneity? Provide an example to illustrate your explanation. 2. Consider a scenario where you are investigating the relationship between government spending and economic growth. Discuss potential sources of endogeneity in this relationship and propose a suitable instrumental variable that could be used to address this issue. Describe how you would verify the validity of your instrumental variable and its relevance to the research question.
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