Consider the Multiple Regression Model with Two Regressors X₁ and X₂

question 8

Multiple Choice

Consider the multiple regression model with two regressors X₁ and X₂, where both variables are determinants of the dependent variable. When omitting X₂ from the regression, then there will be omitted variable bias for $\widehat { \beta 1 }$

• A)if X₁ and X₂ are correlated
• B)always
• C)if X₂ is measured in percentages
• D)if X₂ is a dummy variable

---

Definitions:

Operating Cycle

The period it takes for a company to purchase inventory, sell it, and convert the sale into cash.

Bonds Payable

Long-term liabilities representing borrowed money that a company must repay to bondholders, typically with periodic interest payments.

Long-Term Investment

Investments in securities or assets intended to be held for several years or more to generate long-term returns.

Cash Surrender Value

Cash surrender value is the amount of cash that a life insurance policyholder can receive upon the cancellation of their policy before its maturity or the insured event.