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1. List and briefly explain the classical linear model assumptions. 2. Let community loan approval rates (apprate) be determined by apprate=0+1percmin+2avginc+3avgwlth+4avgdebt+u, where percmin is the
1. List and briefly explain the classical linear model assumptions. 2. Let community loan approval rates (apprate) be determined by apprate=0+1percmin+2avginc+3avgwlth+4avgdebt+u, where percmin is the percentage minority in the community, avginc is average income, avgewlth is average wealth, and avgdebt is some measure of average debt obligations. How do you state the null hypothesis that there is no difference in loan rates across neighborhoods due to racial and ethnic composition, when average income average wealth and average debt have been controlled for? 3. Suppose the true data generating hypothesis is wage=0+1education+2ability+u, where wage is an individual's hourly compensation, education is the individual's years of education, and ability is a measure of the individual's intelligence, drive, and determination. Suppose you cannot actually observe the variable ability, so you estimate wage=0+1education+u Do you think your estimate of 1 in equation (3) is an unbiased estimate of 1 in equation (1)? If so, will 1 be greater than or less than 1 ? Explain why
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