Answer to Question #216774 in Microeconomics for Unknown346144

Question

1.     Consider the following model relating fertility (Y), as measured by the number of children born, to education (X),   

 

(i) What kind of factors are contained in the error term? Are these factors likely to be correlated with the level of education?

 

(ii) Will a simple linear regression analysis produce an unbiased estimate of the effect of education on fertility? Explain.

Answer 1

An error term tends to be residual variable created by mathematical or statistical model if a model fails to effectively represent ideal connection between dependent and independent variables.

The error term incorporates every aspect which separates individual model from the actual reality. It implies that it may reflect unpredictable effects, nonlinearities, ommitted variables as well as measurement errors.These factor do not correlate with the level of education.