An economist is seeking to estimate a causal relationship between the price of housing and the quantity of housing demanded in Kansas. The economist is concerned about their ability to find a causal relationship because price and quantity are determined simultaneously in equilibrium. To address this issue, the economist plans to use instrumental variables regression. To instrument for price the economist plans to use inflation. Inflation is likely to be related to the price of housing as higher prices throughout the economy means higher housing prices. Inflation is also likely to be related to the demand for housing as spending on other goods will affect housing demand. The inflation instrument meets which conditions for a valid instrument? Relevance only Both relevance and exogeneity Neither relevance nor exogeneity Exogeneity only

An economist is seeking to estimate a causal relationship between the price of housing and the quantity of housing demanded in Kansas. The economist is concerned about their ability to find a causal relationship because price and quantity are determined simultaneously in equilibrium. To address this issue, the economist plans to use instrumental variables regression. To instrument for price the economist plans to use inflation. Inflation is likely to be related to the price of housing as higher prices throughout the economy means higher housing prices. Inflation is also likely to be related to the demand for housing as spending on other goods will affect housing demand. The inflation instrument meets which conditions for a valid instrument? Relevance only Both relevance and exogeneity Neither relevance nor exogeneity Exogeneity only

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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