The Extended Least Squares Assumptions in the Multiple Regression Model

question 30

Multiple Choice

The extended least squares assumptions in the multiple regression model include four assumptions from Chapter 6 (ui has conditional mean zero; (X_i,Y_i) , i = 1,…, n are i.i.d. draws from their joint distribution; X_i and u_i have nonzero finite fourth moments; there is no perfect multicollinearity) . In addition, there are two further assumptions, one of which is

• A)heteroskedasticity of the error term.
• B)serial correlation of the error term.
• C)homoskedasticity of the error term.
• D)invertibility of the matrix of regressors.

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Definitions:

Investment

The action or process of allocating resources, usually money, with the expectation of generating an income or profit.

Real Discount Rate

The rate used to discount future cash flows to their present value, adjusting for inflation.

Nominal Discount Rate

The rate of interest quoted or advertised on a loan or investment, not adjusted for inflation.

Inflation

The speed at which overall prices for goods and services increase, leading to a decline in purchasing power.