QUESTION 1 OF4 Which of the least squares assumptions in Chapter 4 implies that

Question

QUESTION 1 OF4 Which of the least squares assumptions in Chapter 4 implies that the error term and the independent variable are uncorrelated? SELECT ALL CORRECT OPTIONS O OPTION A (Xi, Yi)1,..., n are i. i. d. O OPTION B Large outliers are unlikely. O OPTIONC O OPTION D E(ui | Xi) = 0 QUESTION 2 OF4 According to the discussion in Section 4.5, which of the following does not generally decrease the variance of the OLS estimator of the slope, B1? SELECT ALL CORRECT OPTIONS O OPTION A Increasing the variance of the independent variable OPTION B None of the above O OPTION C Increasing the sample size OPTION D Increasing the variance of the error term

Explanation / Answer

Answer 1. Option D, This condition is also obtained from the first normal equation and from the second normal equation we get the independent variables and error terms are uncorrelated.

Answer 2. Option D, this is so because if we increase the variance of the error term, the MSE icreases and hence the variance of the slope estimate also increases.

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