Your friend created a synthetic dataset for you to practice univariate linear regression covered in BT2101. She provided you with a dataset containing 2,000 observations of (x,y) values. You t the model using OLS and achieve a decent R2 (say 60%). Your friend is confused. She confesses to you that the synthetic data was generated using the equation X 2 + Y2 = 108. She expected you to do very poorly because you were trying to t a straight line to a quadratic relationship. The above equation, X 2 + Y2 = 108, is the called the data generating process. In econometrics, we are always interested in nding the true parameters of the data generating process (the process that generated the population), but often it is not available. I wish we all had friends who would just tell us the parameters! 0 Under what circumstances would a straight line t achieve a high R2 despite the data generating process being quadratic (or an even higher order polynomial)? Please explain your thinking in words (carefully) or using mathematics (rigorously). o In the face of a data generating process with higher order polynomials, what are the limitations of such a model with a straight line t? What are the advantages of such a model