Including a Lagged Dependent Variable in an OLS Model When

question 4

Multiple Choice

Including a lagged dependent variable in an OLS model when autocorrelation exists will:

• A) Will lead to unbiased coefficients.
• B) Will lead to biased coefficients.
• C) Will lead to larger standard errors.
• D) Will lead to smaller standard errors.

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Definitions:

Marginal Output

The increase in output resulting from a one-unit increase in the level of input, while holding other inputs constant.

Variable Cost

Expenses that change in proportion to the activity or production level of a business; for example, costs for raw materials that increase as more goods are produced.

Rent

A payment made periodically by a tenant to a landlord in exchange for the use of land, a building, or another property.

Fixed Costs

Costs that do not change with the level of output in the short term, such as rent, salaries, and insurance.