Question

The distinction between endogenous and exogenous variables is:
a. dependent on the distribution of the variables, i.e., when they are normally distributed, they are exogenous, otherwise they are endogenous.
b. whether or not the variables are correlated with the error term.
c. dependent on the sample size, i.e., for n sufficiently large, endogenous variables become exogenous.
d. that exogenous variables are determined inside the model and endogenous variables are determined outside the model.

Answer 1

DISTINCTION BETWEEN ENDOGENOUS AND EXOGENOUS VARIABLES IS -

A) Dependent on the distribution of the variables i.e., when they normally distributed , they are exogenous otherwise endogenous. Because exogenous variables are independent and endogenous variables are dependent variables whose value depend on other variables.

OTHER FACTORS DO NOT DESCRIBE DISTINCTION BETWEEN EXOGENOUS VARIABLES AND ENDOGENOUS VARIABLES -

B) Whether or not the value are correlated with error terms -Error terms are not related with endogenous variables and exogenous variables. Error terms are realted with independent and dependent variables

C) Dependent on the sample size,i.e., for n sufficiently large,endogenous variables becomes exogenous - As endogenous variables are dependent variables they never became exogenous .

D) Exogenous model are determined inside the model and endogenous variables are determined outside the model -Exogenous variables are determined outside the variables and endogenous variables are determined inside the model.As exogenous are the factors affecting the endogenous variables that why inside model is endogenous and outside model is exogenous.