Which of the Following Is True About Weak Instruments

question 21

Multiple Choice

Which of the following is true about weak instruments?

• A) A weak instrument is correlated with the error term.
• B) The larger the sample size, the bigger the problem (bias) caused by the use of a weak instrument.
• C) A weak instrument is an instrument that does a poor job of explaining X.
• D) A weak instrument fails the exclusion condition.

---

Definitions:

Cash Dividends

Payments made by a company out of its profits to its shareholders in the form of cash.

Comparative Balance Sheet

A financial statement that presents a company's assets, liabilities, and shareholders' equity at two different points in time to analyze financial health and trends.

Net Income

The company's final financial gain once every expense, tax, and cost is subtracted from the gross income.

Operating Activities

Financial transactions and events related to the core business operations of a company.