Problem 1 Endogeneity & Bias The ACT (an abbreviation of American College Testing) is a standardized test used for college admissions in the United States. Suppose you are interested in whether ACT preparation improves ACT scores. Consider the following model: ACT=B+B Preparation,+e; where Preparation measures the number of hours spent on ACT preparation and ACT is ACT scores. Each student is denoted by the subscript i. Suppose you estimate = - 21 andß₁ = 0.9. a. What is the dependent variable? What is the independent variable? (3 points) b. How do you interpret ẞ = 21 in this context? (4 points) 0 C. How do you interpretß₁ = 0.9 in this context? (4 points) 1 d. Describe a scenario which can cause the independent variable to be endogenous. (4 points)
Problem 1 Endogeneity & Bias The ACT (an abbreviation of American College Testing) is a standardized test used for college admissions in the United States. Suppose you are interested in whether ACT preparation improves ACT scores. Consider the following model: ACT=B+B Preparation,+e; where Preparation measures the number of hours spent on ACT preparation and ACT is ACT scores. Each student is denoted by the subscript i. Suppose you estimate = - 21 andß₁ = 0.9. a. What is the dependent variable? What is the independent variable? (3 points) b. How do you interpret ẞ = 21 in this context? (4 points) 0 C. How do you interpretß₁ = 0.9 in this context? (4 points) 1 d. Describe a scenario which can cause the independent variable to be endogenous. (4 points)
Chapter19: Externalities And Public Goods
Section: Chapter Questions
Problem 19.12P
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Transcribed Image Text:Problem 1
Endogeneity & Bias
The ACT (an abbreviation of American College Testing) is a standardized test used for college
admissions in the United States.
Suppose you are interested in whether ACT preparation improves ACT scores. Consider the
following model:
ACT=B+B Preparation,+e;
where Preparation measures the number of hours spent on ACT preparation and ACT is
ACT scores. Each student is denoted by the subscript i.
Suppose you estimate = - 21 andß₁
= 0.9.
a. What is the dependent variable? What is the independent variable? (3 points)
b. How do you interpret ẞ = 21 in this context? (4 points)
0
C.
How do you interpretß₁ = 0.9 in this context? (4 points)
1
d. Describe a scenario which can cause the independent variable to be endogenous. (4
points)
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