An independent researcher is interested in finding out whether there exists a positive relationship between the number of years of formal education received by an individual and the number of years of formal education received by each of his parents. It is assumed that the number of years of formal education received by one parent of an individual is positively correlated with that of the other parent. The researcher randomly selects 130 individuals and estimates the following regression function: Y₁ =7+0.56X₁. th where Y, denotes the number of years of formal education received by the individual and X; denotes the number of years of formal education received by the individual's father. Since the researcher only incorporates the educational attainment of an individual's father in the regression, and not that of the individual's mother, omitted variable bias will occur. Which of the following statements correctly describes the omitted variable bias? OA. Omitted variable bias arises when the variance of the conditional distribution of error term is not constant and depends on the omitted variable. B. Omitted variable bias arises when the omitted variable is correlated with a regressor and is a determinant of the dependent variable. O C. Omitted variable bias arises when the omitted variable is a determinant of the independent variable but not of the dependent variable. O D. Omitted variable bias arises when the omitted variable is correlated with the error term and is a determinant of a regressor. Suppose the researcher somehow discovers that the values of the population slope (₁), the standard deviation of the regressor (6x), the standard deviation of the error term (ou), and the correlation between the error term and the regressor (px) are 0.32, 0.55, 0.34, 0.47, respectively. As the sample size increases, the value to which the slope estimator will converge to with high probability is 0.32 (Round your answer to two decimal places.) In this case, the direction of the omitted variable bias is positive
An independent researcher is interested in finding out whether there exists a positive relationship between the number of years of formal education received by an individual and the number of years of formal education received by each of his parents. It is assumed that the number of years of formal education received by one parent of an individual is positively correlated with that of the other parent. The researcher randomly selects 130 individuals and estimates the following regression function: Y₁ =7+0.56X₁. th where Y, denotes the number of years of formal education received by the individual and X; denotes the number of years of formal education received by the individual's father. Since the researcher only incorporates the educational attainment of an individual's father in the regression, and not that of the individual's mother, omitted variable bias will occur. Which of the following statements correctly describes the omitted variable bias? OA. Omitted variable bias arises when the variance of the conditional distribution of error term is not constant and depends on the omitted variable. B. Omitted variable bias arises when the omitted variable is correlated with a regressor and is a determinant of the dependent variable. O C. Omitted variable bias arises when the omitted variable is a determinant of the independent variable but not of the dependent variable. O D. Omitted variable bias arises when the omitted variable is correlated with the error term and is a determinant of a regressor. Suppose the researcher somehow discovers that the values of the population slope (₁), the standard deviation of the regressor (6x), the standard deviation of the error term (ou), and the correlation between the error term and the regressor (px) are 0.32, 0.55, 0.34, 0.47, respectively. As the sample size increases, the value to which the slope estimator will converge to with high probability is 0.32 (Round your answer to two decimal places.) In this case, the direction of the omitted variable bias is positive
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:An independent researcher is interested in finding out whether there exists a positive relationship between the number of years of formal education received
by an individual and the number of years of formal education received by each of his parents. It is assumed that the number of years of formal education
received by one parent of an individual is positively correlated with that of the other parent. The researcher randomly selects 130 individuals and estimates
the following regression function:
Y₁ = 7+0.56X₁,
where Y, denotes the number of years of formal education received by the th individual and X; denotes the number of years of formal education received by
the th individual's father.
Since the researcher only incorporates the educational attainment of an individual's father in the regression, and not that of the individual's mother, omitted
variable bias will occur.
Which of the following statements correctly describes the omitted variable bias?
A. Omitted variable bias arises when the variance of the conditional distribution of error term is not constant and depends on the omitted variable.
B. Omitted variable bias arises when the omitted variable is correlated with a regressor and is a determinant of the dependent variable.
C. Omitted variable bias arises when the omitted variable is a determinant of the independent variable but not of the dependent variable.
O D. Omitted variable bias arises when the omitted variable is correlated with the error term and is a determinant of a regressor.
Suppose the researcher somehow discovers that the values of the population slope (₁1), the standard deviation of the regressor (ox), the standard deviation
of the error term (u), and the correlation between the error term and the regressor (pxu) are 0.32, 0.55, 0.34, 0.47, respectively.
As the sample size increases, the value to which the slope estimator will converge to with high probability is 0.32
(Round your answer to two decimal places.)
In this case, the direction of the omitted variable bias is positive
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