$\mathrm { E } \left( u _ { i } \mid X _ { i } \right) = 0$

question 2

Multiple Choice

$\mathrm { E } \left( u _ { i } \mid X _ { i } \right) = 0$ says that

• A) dividing the error by the explanatory variable results in a zero (on average).
• B) the sample regression function residuals are unrelated to the explanatory variable.
• C) the sample mean of the Xs is much larger than the sample mean of the errors.
• D) the conditional distribution of the error given the explanatory variable has a zero mean.

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Definitions:

Foreign-Currency Exchange

The process of exchanging one currency for another, determining how much of one currency is worth in terms of another.

Net Capital Outflow

The difference between domestic savings and domestic investment, representing the amount of capital leaving a country to invest abroad minus the capital inflowing from abroad for investment domestically.

Interest Rate

The percentage of a loan charged to the borrower as interest, usually represented as an annual percentage rate of the remaining loan balance.

Market For Foreign-Currency Exchange

A marketplace where participants can trade currencies from different countries, essentially a repeated framework for the process in