What Is Meant by the Term "Omitted Variable" in Correlation

question 8

Essay

What is meant by the term "omitted variable" in correlation analysis? Explain with an example.

---

Definitions:

Foreign Currency

Money or legal tender issued by a country other than one's own, used for international trade and investment.

Price Levels

A mean calculation of prices for all goods and services currently in the economic domain.

Nominal Exchange Rate

The rate at which the currency of one country can be exchanged for the currency of another country, not adjusted for inflation.

Net Exports

The value of a country's total exports minus its total imports, representing the net amount of a nation's goods and services traded with the rest of the world.