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Simultaneous Equations Models Quiz

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Questions and Answers

In simultaneous equations models, the dependent variables are functions of...

other dependent variables (correct)

independent variables

explanatory variables

error terms

Simultaneity poses challenges for the estimation of statistical parameters due to the violation of...

normality assumption of errors

homoscedasticity assumption

Gauss–Markov assumption of strict exogeneity (correct)

linearity assumption of the model

What is a typical example of a simultaneous equations model in economics?

Linear regression model

Time series model

Supply and demand model (correct)

Logistic regression model

Why is it difficult to estimate all simultaneous equations at once?

<p>It leads to a computationally costly non-linear optimization problem</p> Signup and view all the answers

What does it mean when some explanatory variables are jointly determined with the dependent variable in simultaneous equations models?

<p>The explanatory variables are functions of the dependent variable</p> Signup and view all the answers

Study Notes

Simultaneous Equations Models

In simultaneous equations models, the dependent variables are functions of other dependent variables, explanatory variables, and error terms.

Challenges of Estimation

Simultaneity poses challenges for the estimation of statistical parameters due to the violation of the assumption of independence between the dependent variable and the error term.

Typical Example

A typical example of a simultaneous equations model in economics is the supply and demand model, where the quantity supplied and the quantity demanded are simultaneously determined.

Estimation Difficulties

It is difficult to estimate all simultaneous equations at once because the equations are interdependent, and changes in one equation affect the others.

Joint Determination

When some explanatory variables are jointly determined with the dependent variable in simultaneous equations models, it means that the explanatory variables are endogenous, i.e., they are affected by the dependent variable.

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Description

Test your understanding of simultaneous equations models in economics with this quiz. Explore how dependent variables are interrelated and jointly determined by other variables, and delve into the underlying equilibrium mechanisms. Ideal for economics students and enthusiasts.