The following simple model is used to determine the annual savings of an individual on the...
The following simple model is used to determine the annual savings of an individual on the basis of his annual income and education.
Savings = β0+∂0 Edu + β1Inc+u
The variable ‘Edu’ takes a value of 1 if the person is educated and the variable ‘Inc’ measures the income of the individual.
Refer to the above model. If ∂0 > 0, _____.
| a. |
individual with lower income have higher savings |
|
| b. |
individuals with lower income have higher savings |
|
| c. |
educated people have higher savings than those who are not educated |
|
| d. |
uneducated people have higher savings than those who are educated |
Homework Answers
Since, Edu takes a value of 1 if the person is educated
and ∂0 > 0 if Edu = 1 the value of variable ‘Inc’ increases
hence,
c. educated people have higher savings than those who are not educated
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