Question

Suppose we consider using family income, ( textfaminc ), as an instrumental variable for PC ownership. Family income satisfies the instrumental variable requirements for which of the following reasons?

a) It is strongly correlated with PC ownership.

b) It has a direct causal relationship with PC ownership.

c) It is exogenous and unrelated to PC ownership.

d) It is negatively correlated with PC ownership.

Answer 1

Family income, textfaminc, is an instrumental variable for PC ownership because it is exogenous and unrelated to PC ownership.

Step-by-step explanation:

Family income, textfaminc, can be considered as an instrumental variable for PC ownership because it satisfies the instrumental variable requirements for being exogenous and unrelated to PC ownership. This means that family income is not directly influenced by PC ownership and is independent of it. It does not have to be strongly correlated with PC ownership or have a direct causal relationship with it.