The determining function that drives share of accepted job offers for a company is given by the following equation: AcceptedOffers_t = α₀ + α₁StartingSalary_t + α₂EconomicClimate_t + U_t, where the unit of observation is particular month (t). Suppose one wanted to use the national unemployment rate (unemployment_t) as a proxy for EconomicClimate. Which of the following would be a condition that would rule out the unemployment rate being a good proxy for economic climate? A) α₂ 0 D) EconomicClimate is correlated with StartingSalary

Question

The determining function that drives share of accepted job offers for a company is given by the following equation: AcceptedOffers_t = α₀ + α₁StartingSalary_t + α₂EconomicClimate_t + U_t, where the unit of observation is particular month (t). Suppose one wanted to use the national unemployment rate (unemployment_t) as a proxy for EconomicClimate. Which of the following would be a condition that would rule out the unemployment rate being a good proxy for economic climate? A) α₂ < 0 B) Unemployment rate to be correlated with "other factors" (U_t) C) α₂ > 0 D) EconomicClimate is correlated with StartingSalary

Quizplus · Accepted Answer

The condition that would rule out the unemployment rate being a good proxy for economic climate is if the unemployment rate is correlated with "other factors" (U_t). This means that if there are other factors affecting the share of accepted job offers besides the national unemployment rate, then using the unemployment rate as a proxy for economic climate would not accurately capture the true relationship between economic conditions and job offer acceptance. Therefore, option B is the best choice. Options A, C, and D do not necessarily rule out the unemployment rate as a good proxy for economic climate.

The Determining Function That Drives Share of Accepted Job Offers