Consider the Following Simple Regression Model: Y = β₀+ β₁x₁

question 17

Multiple Choice

Consider the following simple regression model: y = β₀+ β₁x₁+ u.In order to obtain consistent estimators of β₀and β₁,when x and u are correlated,a new variable z is introduced into the model which satisfies the following two conditions: Cov(z,x) ≠0 and Cov (z,u) =0.The variable z is called a(n) _____ variable.

• A)dummy
• B)instrumental
• C)lagged dependent variable
• D)random