1] In a system of equations, consider the following spending equation: Spending = a + b [Disposable Income} + 5 Suppose Disposable Income is subject
1] In a system of equations, consider the following spending equation: Spending = a + b [Disposable Income} + 5 Suppose Disposable Income is subject to simultaneity problem. The reduced form equations suggest a linear relation between Disposable Income and Population. Data follows: Year Spending Disposable Income Population 1991 3.1 3.9 10.4 1992 5.9 6.? 10.6 1993 3.9 5.1 10.]I 1994 7.1 3.1 10.3 1995 5.8 6.1 11.0 1.a} Calculate DLS and ZSLS estimate for the Spending coefficients. 1.b) Test if the simultaneityr problem is statistically significant. 1.c] Assess whether population is a good choice for use in this model as an instrumental variable
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