Suppose You Are Estimating the Following Model: Y_i = β₀

question 7

Multiple Choice

Suppose you are estimating the following model: Y_i = β₀ + β₁X_i + U_i. You believe the variance of the unobserved factors (U) varies with X. If this is true, what is the consequence?

• A) Your estimate for β₁ will be biased.
• B) Your estimate of β₀ will be biased.
• C) Your estimate for β₀ and β₁ will be biased.
• D) None of the above answers is correct

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