Given the following econometric model, wage = β₀+ β₁educ + u, can we eliminate the error term u entirely? A)Yes, by including other observable factors, such as experience, that can also influence wage. B)Yes, by ensuring that everyone reports wage accurately and truthfully. C)No, because education is not always reported accurately. D)No, because many factors affect wage, that we cannot even list, let alone observe.

Question

Quizplus · Accepted Answer

It is impossible to completely eliminate the error term u in the model because there are numerous unobservable factors that can affect wages which cannot be accounted for in the model.

Given the Following Econometric Model, Wage = β0+ β1educ

Given the Following Econometric Model, Wage = β₀+ β₁educ