Econometrics deals with the measurement of economic relationships which are stochastic or random. The simplest form of economic relationships between two variables X and Y can be represented by: Yi   0  1Xi Ui ; where  0 and 1  are regression parameters and Ui  the stochastic disturbance term What are the reasons for the insertion of U-term in the model?

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Econometrics deals with the measurement of economic relationships which are
stochastic or random. The simplest form of economic relationships between two
variables X and Y can be represented by:
Yi   0  1Xi Ui

; where  0 and 1  are regression parameters

and Ui  the stochastic disturbance term

What are the reasons for the insertion of U-term in the model?

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