Solve the following attachments

Choose the wrong statement regarding Figure 9.1 of Stock and Watson (the left graph on page 19 of Lecture Slides 7) a. The graph shows 220 data points (please do not count on the graph!). b. The scatter diagram shows some nonlinearity in the relationship between TestScore and District Income. . C. The following R-code estimates the linear regression: > Im_robust(score4 ~ income, se_type = "HC1") O d. The following R-code estimates the cubic regression: > Im_robust(score4 ~ income + income^2 + income^3, se_type = "HC1") O e. The following R-code estimates the linear-log regression: > Im_robust(score4 ~ log(income), se_type = "HC1")2. Instrumental variables [35 points} Suppose you are a labor economist and you are interested in the empirical relationship between the years of education and labor market earnings. too have access to a nationally-representative sample of individuals and you observe their years of education {siL labor market earnings (will, and years of labor market experience [xi]. a} Write down the returns to schooling equation [Hint a regression of the natural logarithm of earnings on years of schooling and a quadratic in years of labor market experience. Don't forget the residual I] (ll) pointsl. b] You want to estimate the causal impact of an additional year of schooling on labor market earnings using the returns to schooling equation. Can you get causal estimates simply using the OLE framework? What is the main econometric identication problem? Explain carefully {15 points]. c] Suppose you decided to implement an instrumental variables {Iv} strategy to obtain causal estimates- You are choosing among two alternative instruments: - A dummy variable indicating whether the individuals in your sample have educated or uneducated parents. - A dummy variable indicating whether the individuals in your sample are subject to a change in compulsory schooling law {say an increase from 5 years to 3 years} or not. Which one is a better I'll? Provide a technical discussion for both variables [Hint remember the two l'yr assumptions] no points]. 3. (20 points) The following is a simplified balance sheet for Local Horse and Trader Bank (LHTB). Show all work for potential partial credit. Assume that in addition to our reserve requirement, we assume a bank must have capital ratio of 5%, where capital is measured against only loan value. Assets Liabilities + Net Worth Required Reserves ? Demand Deposits |$400,000 Excess Reserves $5,000 Loans $355,000 Net Worth $20,000 (a) Calculate the required reserve ratio and current capital ratio. (b) How much could the bank lend out today and still meet its reserve requirement today? I (c) Assume the bank makes the loans from the previous part of the question, and the loans are redeposited at the same bank. Write out the new balance sheet. (d) Based on the capital requirement, what would be the value for the maximum loans at LTHB. Assume the bank makes these new loans, and any new loans are redeposited at the bank. Write out this new balance sheet. (e) Which institution is the bank's 'lender of last resort" dealing with liquidity issues, and which institution deals with bank solvency issues? For which reason do banks hold "capital'? Liquidity or solvency -why?4. Development of a new deluxe version of a particular software product is being considered by Ravi Behara's software house. The activities necessary for the completion of this project are listed in the following table. Normal Crash Activity Time Normal Crash Immediate Time (Weeks) (Weeks) Cost (() Cost (() Predecessor A 4 3 2,000 2,600 2 2,200 2,800 3 500 500 - 8 2,300 2,600 A WA 6 900 1,200 B 3,000 4.200 C NN 4 1,400 2,000 D.E a) Construct the project network for this project (activity on node). b) Find Earliest Start (ES), Latest Start (LS), Earliest Finish (EF), Latest Finish (LF) and Slack for each activity. c) Determine the Critical path & Project completion time. d) Construct the Gantt chart based on ES &LS. e) What is the total cost required for completing this project on normal time? f) If you wish to reduce the time required completing this project by 1 week, which activity should be crashed, and how much will this increase the total cost