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C. Do you think the instrumental variable you described above in part b) satisfes the

two key conditions of a good instrumental variable?

Q1. You are interested in estimating the effects of owning a tablet (such as an iPad) on thegrades of high school students (the idea is that owning a tablet might help students takenotes and study more effectively). You have data on tablet ownership and GPA for asample of 1000 students. You wish to estimate this model: GPA : ,80 + ?ltablet + u where GPA is the student’s grade point average measured on a scale of 0—4, and tablet isa dummy variable that equals one if a student owns a tablet and zero otherwise. a. What does 1;. represent in this model? Give an example of a variable that mightbe contained in u. If tablet is correlated with u, what does this mean for a linearregression (OLS) estimate of {31? b. You discover that another school district decided to buy tablets for its high schoolstudents. However, the district did not have enough money to buy a tablet for everystudent, so they randomly chose some students to receive a tablet (while othersdid not get one). How could you use this information to construct an instrumentalvariable (IV) to estimate the effect of tablet usage on GPA? What two conditions doesyour instrumental variable have to satisfy in order to generate consistent estimates?Which one of these can you test? How would you do this?

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