The distinction between endogenous and exogenous variable is whether or not the variable are correlated with the error term

Economics Dec 14, 2020

The distinction between endogenous and exogenous variable is whether or not the variable are correlated with the error term.

True

False

Expert Solution

False, endogenous and exogenous refers to the degree of predictability of the variable for example, in GDP equation which is

Y = C + I +G + X - M

In this model

G i.e. govt spending and X - M i.e. net exports are the variables whose values are determined outside the macroeconomic models whereas the value of C i.e consumption and I i.e. investments are determined by the their specific macroeconomic models.

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