Illustrate clearly the concept of dummy variable trap, Microeconomics

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Problem:

(a) Consider the Classical Linear Regression Model (CLRM)

Yi = α + βXi + εi

(i) Using the method of ordinary least squares (OLS), derive an expression for α and β.

(ii) Prove that the OLS estimators derived in (a) above are unbiased.

(b) Illustrate clearly the concept of dummy variable trap.


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