Question 19 We want to study the effect of education level on wage, and we know

Question

Question 19

We want to study the effect of education level on wage, and we know that ability is highly correlated with education and also affects wage, however, we omit ability and only include education in the regression model, which of the following assumption will be violated?

MLR.1. Linear in parameters

MLR.2. Random sampling

MLR.3. No perfect collinearity

MLR.4. Zero conditional mean

MLR.5. Homoskedasticity

MLR.6. Normality of error terms

MLR.1. Linear in parameters

MLR.2. Random sampling

MLR.3. No perfect collinearity

MLR.4. Zero conditional mean

MLR.5. Homoskedasticity

MLR.6. Normality of error terms

Explanation / Answer

Answer:- • assumption E(u|X) = 0 is important in order for the OLS estimator to be unbiased.This assumption is violated if we omit a variable from the regression that belongs in the model. The bias that arise from such an omission is called omitted variable bias.

Option (D) is correct.

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