Consider a simple model to estimate the effect of personal computer (PC) ownership on college…

Consider a simple model to estimate the effect of personal computer (PC) ownership on college grade point average for graduating seniors at a large public university:

GPA=b0 +b1PC+u,

where PCis a binary variable indicating PC ownership.

(i) Why might PC ownership be correlated with u?

(ii) Explain why PCis likely to be related to parents’ annual income. Does this mean parental income is a good IV for PC? Why or why not?