When You Have an Omitted Variable Problem, the Assumption That $E \left( u _ { i } \mid X _ { i } \right) = 0$

question 35

Multiple Choice

When you have an omitted variable problem, the assumption that $E \left( u _ { i } \mid X _ { i } \right) = 0$ is violated. This implies that

• A) the sum of the residuals is no longer zero.
• B) there is another estimator called weighted least squares, which is BLUE.
• C) the sum of the residuals times any of the explanatory variables is no longer zero.
• D) the OLS estimator is no longer consistent.

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Definitions:

Stockholders' Equity

The ownership interest of shareholders in the assets of a corporation, calculated as total assets minus total liabilities.

Assets

Resources owned or controlled by a business, entity, or individual, which are expected to produce value.

Liabilities

Financial obligations or debts owed by a company to creditors.

Missing Amount

A term referring to unaccounted funds or discrepancies found in financial records during a reconciliation or audit process.