Indicate whether the following statements are true, false or uncertain by providing necessary proofs. (a) Suppose your instructor told you to construct a model for demand for coffee by using income...

Extracted text: Indicate whether the following statements are true, false or uncertain by providing necessary proofs. (a) Suppose your instructor told you to construct a model for demand for coffee by using income and the price of coffee as explanatory variables. However, for some reasons, you model the regression by using the price of coffee only. In that case your estimated regression may suggest that price of coffee has a positive effect on demand for coffee. (A proof is expected) (b) Consider the following estimated regression InY, = 2.57 + 0.212 InK + 0.343 InLe + 0.030 InW: (2.90) (0.348) (0.551) (0.063) where Y; is the industry output, K; and L represent capital and labor, respectively. It is claimed that there is no problem with the estimated regression and all the inferences are consistent with economic theory.