₉ Suppose That X₁ Is Measured with Error $\beta$ ₀

question 12

Multiple Choice

_9. Suppose that X₁ is measured with error.
Y_i = $\beta$ ₀ + $\beta$ ₁X_1i + $\varepsilon$ _i
X_i = X*_1i + $\nu$ _i
In which of the following cases will the bias be most severe?

• A) The variance of the independent variable (\(\sigma\)_x*) is much smaller than the variance of the error measurement error (\(\sigma\)_\(\nu\)).
• B) The variance of the independent variable (\(\sigma\)_x*) is much larger than the variance of the error measurement error ((\(\sigma\)_\(\nu\)).
• C) The variance of the error measurement error ((\(\sigma\)_\(\nu\)) is zero.
• D) There will be no bias.

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Definitions:

Wealth

The abundance of valuable financial assets or physical possessions which can be converted into forms that can be used for transactions.

Compensating Differential

The difference in wages that arises from differences in the non-monetary aspects of different jobs, such as risk or desirability.

Coding Sector

The industry segment focused on the development, writing, and implementation of computer software and programs.

Labor Force

The total number of people available to work, including both the employed and the unemployed.