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Answer: Omitted variable bias occurs when the omitted variable is correlated with an included regressor and is a determinant of the dependent variable.
Omitted variable bias occurs when a model improperly omits one or more variables that are critical determinants of the dependent variable and are correlated with one or more of the other included independent variables. This bias results in an over- or under-estimation of the regression parameters. The correct answer is A, as it accurately describes the scenario where the omitted variable is both a determinant of the dependent variable and correlated with an included regressor, leading to the bias. Options B, C, and D are incorrect because they either misrepresent the relationship between the omitted variable and the determinant of the dependent variable or incorrectly suggest that the omitted variable is not correlated with any included regressors.
Author: LeetQuiz Editorial Team
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A
Omitted variable bias occurs when the omitted variable is correlated with an included regressor and is a determinant of the dependent variable.
B
Omitted variable bias occurs when the omitted variable is correlated with an included regressor but is not a determinant of the dependent variable.
C
Omitted variable bias occurs when the omitted variable is independent of an included regressor and is a determinant of the dependent variable.
D
Omitted variable bias occurs when the omitted variable is independent of an included regressor but is not a determinant of the dependent variable.
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