Question

3. Suppose you are interested in investigating the effects of computer owners hip (PC) on college student's GPA. To that end, you set up the model, GDP Po PiPC + u (a) Explain why OLS estimator of pi is likely to be biased. (b) Suppose upon entering the university, students with low family income are randomly selected to receive a grant that can only be used to buy computer. Explain why the receipt/non-receipt of such grant cannot be used as a valid instrumental variable for PC. (e) What if the grant program randomly selects students from the entire en tering student population?

Answer 1

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