When an error term is added to an economic model and assumptions about the distribution of the error term are made,the resulting model is ______________.
A)fallacious,you should not make assumptions about error terms.
B)an econometric model that can be estimated and used for inference.
C)misspecified due to missing information.
D)heteroskedastic since error terms are no longer random.

Question

Quizplus · Accepted Answer

Adding an error term and making assumptions about its distribution is a common practice in econometrics. Econometric models with error terms can be estimated and used for inference.

When an Error Term Is Added to an Economic Model