Refer to the simultaneous equations model above.The reduced form error from the reduced form equation for K₂ will be a: A)quadratic function of u₁ and u₂?,and correlated with z₁_? and z₂. B)quadratic function of u₁ and u₂?,and uncorrelated with z₁_? and z₂. C)linear function of u₁ and u₂?,and correlated with z₁_? and z₂. D)linear function of u₁ and u₂?,and uncorrelated with z₁_? and z₂.

Question

Quizplus · Accepted Answer

In a simultaneous equations model, the reduced form errors are linear combinations of the structural errors and are uncorrelated with the exogenous variables.

Refer to the Simultaneous Equations Model Above