Discuss the simultaneous equations model

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Reference no: EM133204183

Assignment:

Consider the simultaneous equations model

??????_?? = ??₁ + ??₂??????_?? + ??₃??????_?? + ??₄??????_?? + ??_1??

??????_?? = ??₁ + ??₂???????? + ??₃????_?? + ??_2??

where EXP=expenditure; AID=aid; INC=Income; POP=Population; PS=political stability index

Use this model to answer Question 1 (a), (b), (c), (d) and (e) as indicated in the text

(a) Why is this a simultaneous equations model?

(b) What are the endogenous variables in the model?

(d) Is it important to check for identification this model? Briefly explain.

(e) Write the reduced form for the EXP equation.

Reference no: EM133204183

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