The following simple model is used to determine the annual savings of an individual on the basis of his annual income and education.
Savings = 
The variable ‘Edu' takes a value of 1 if the person is educated and the variable ‘Inc' measures the income of the individual.
?
Refer to the model above. The inclusion of another binary variable in this model that takes a value of 1 if a person is uneducated, will give rise to the problem of _____.
A. omitted variable bias
B. self-selection
C. dummy variable trap
D. heteroskedastcity
Answer: C
You might also like to view...
When buying a car from a commission salesman you improve your bargaining position by
a. shopping when the new model year cars have just arrived b. shopping when the showroom is full of customers c. shopping when the car lot has very few cars left unsold d. shopping toward the end of the month
Which of the following is a valid concern about the national debt for a country whose debt is held entirely by its citizens?
a. The welfare of future generations will be directly related to the per-capita size of the national debt that they inherit. b. Growth of the national debt will eventually lead to the bankruptcy of the government. c. When the debt comes due, future generations may be unable to pay it off. d. If the increases in the national debt reduce private expenditures on capital formation, future generations may have lower incomes because they will inherit a smaller stock of capital.
Which of the following is one of the properties of muscles?
A. Excitability B. Antagonist C. Pronator D. Stability
How does the presence of an underground labor market bias the government's calculation of the labor force participation rate?
A. The official government statistic on labor force participation is too high because people working in the underground labor market should be counted as being in the labor market but unemployed. B. The official government statistic on labor force participation is identical to actual labor market participation whether or not there is an underground labor market. C. The official government statistic on labor force participation is too low because people working in the underground labor market should not be counted as being in the labor market. D. The official government statistic on labor force participation is too high because people working in the underground labor market should not be counted as being in the labor market. E. The official government statistic on labor force participation is too low because people working in the underground labor market should be counted as being in the labor market and employed.