Which of the Following Statements Is True Regarding Var When

question 9

Multiple Choice

Which of the following statements is true regarding var when estimated by IV using z as an instrument for x?

• A)instrumental variable estimation leads to larger variance of estimates compared to OLS
• B)instrumental variable estimation leads to smaller variance estimates compared to OLS
• C)the variance of the IV estimates can be larger or smaller than OLS,depending on r²_xz
• D)there is no way to know which estimator leads to estimates with a larger variance,it depends on the data

---

Definitions:

Cycle of Debt

A repetitive sequence where a borrower incurs new debt to pay off existing debts, often leading to worsening financial conditions.

Prevented Industrialization

The hindrance or delay of the industrial development process in a country or region, often due to external or internal factors.

Colonization

The act of establishing control over a foreign land and its people by a country or group, often leading to exploitation and cultural assimilation.

Abundant Natural Resources

The availability of a large quantity of natural materials that can be utilized for economic gain, such as minerals, forests, and water.