Question

Consider a simple model to measure the effects of taking a preparatory course (a binary variable, course) on eventual score on a college admissions exam: score = Bo + Bicourse + u a. If we want to test whether or not the preparatory course has an effect on the score of the college admissions exam, what are our null and alternative hypotheses? When do we reject the null hypothesis? b. Why might course be correlated with u? Is ê, likely to be unbiased? C. Is course likely to be related to parents' income? If so, does this mean parental income is a good instrumental variable for course? Explain. d. Suppose that 20% of students at every school were randomly given tuition waivers for the course. Carefully explain how you would use this information to construct an IV for course. (Be sure to discuss whether or not the assumptions are valid, is it a good IV?).

Answer 1

d) One cannot use rution waivers as an Instrument for the course, because ruhion waivers are not correlated to the course (they they need to be fora valid (V) they however Scanned by TapScanner