Heteroscedasticity and homoscedasticity.

Empirical Research.

Consider the following Keynesian model of income determination

Where,

C= Consumption expenditure

I=Investment expenditure

Y=Income

G=Government expenditure

G₁ and Yt-1 are assumed predetermined

(a) State the reduced form equations and determine which of the preceding equations are identified.

(b) Which method will you use to estimate the parameters of the over identified equation and of the exactly identified equation? Justify your answer.

What do you mean by the term 'lags' in the context of economic data? Explain the various methods to estimate the distributed lag models.

Fixed effect Model and Random effect model.

Distinguish between ordinary least square method and indirect least square method of estimation. Specify the conditions under which indirect least method is applied.

Explain with illustrations the various steps involved in econometric methodology. What are the consequences of omitting a relevant explanatory variable in a regression model?