Exercise 4: Strict Exogeneity and its Consequences Let kids denote the number of children ever born to a woman, and let educ denote years of education for the woman. A simple model relating fertility to years of education is: kids = 0 + 1educ + epsilon,

1. What kinds of factors are contained in ? Are these likely to be correlated with level of education? Explain.

2. Will a simple regression analysis uncover the ceteris paribus effect of education on fertility? Explain.

3. If the answer to the previous question is negative, show that the OLS estimator for 1 is biased. 4. If 1 is biased, what is the sign of the bias? Explain.