When your multiple regression function includes a single omitted variable regressor, then
A)use a two-sided alternative hypothesis to check the influence of all included variables.
B)the estimator for your included regressors will be biased if at least one of the included variables is correlated with the omitted variable.
C)the estimator for your included regressors will always be biased.
D)lower the critical value to 1.645 from 1.96 in a two-sided alternative hypothesis to test the significance of the coefficients of the included variables.

Question

Quizplus · Accepted Answer

When a single omitted variable is included in a multiple regression function, the estimator for the included regressors will be biased if at least one of the included variables is correlated with the omitted variable. This is known as the omitted variable bias. Therefore, option B is the correct choice. The other options are incorrect. We do not need to use a two-sided alternative hypothesis to check the influence of all included variables (option A). The estimator for the included regressors will not always be biased (option C). Finally, we do not need to lower the critical value to 1.645 from 1.96 in a two-sided alternative hypothesis to test the significance of the coefficients of the included variables (option D).

When Your Multiple Regression Function Includes a Single Omitted Variable