Suppose you are interested in studying the relationship between education and wa

Question

Suppose you are interested in studying the relationship between education and wage. More specifically, suppose that you believe the relationship to be captured by the following linear regression model, wage = 0 + 1 Education + u Suppose further that the only unobservable that can possibly affect both wage and education is intelligence of the individual OLs assumpti(): The cditional distribution of u, given X, has a mean of zero. Mathematically, E(uXi)-0 Which of the following provides evidence in favor of OLS assumption #1? Check all that apply A. B. c. D, covariance(Intelligence. Education) #0. E(IntelligencelEducationEX)-E(Intelligence!Education, for all xty. corr(Intelligence, Education) corr(Intelligence, Education,-0.

Explanation / Answer

Corr(Intelligence, Education) =0 . This provides the evidence that the conditional distribution of ui given Xi hs a mean of zero.

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