At a mathematical level,if the two conditions for omitted variable bias are satisfied,then
A)E(ui X1i,X2i,... ,Xki)≠ 0.
B)there is perfect multicollinearity.
C)large outliers are likely: X1i,X2i,... ,Xki and Yi and have infinite fourth moments.
D)(X1i,X2i,... ,Xki,Yi),i = 1,... ,n are not i.i.d.draws from their joint distribution.

Question

At a mathematical level,if the two conditions for omitted variable bias are satisfied,then
A)E(ui X1i,X2i,... ,Xki)≠ 0. 
B)there is perfect multicollinearity. 
C)large outliers are likely: X1i,X2i,... ,Xki and Yi and have infinite fourth moments. 
D)(X1i,X2i,... ,Xki,Yi),i = 1,... ,n are not i.i.d.draws from their joint distribution.

Quizplus · Accepted Answer

The two conditions for omitted variable bias are:
1) The omitted variable must be correlated with at least one of the included regressors (i.e. X1i, X2i, ..., Xki).
2) The omitted variable must be a determinant of the dependent variable (i.e. Yi) or the outcome variable in the regression equation.
If these two conditions are satisfied, then the error term (ui) will be correlated with the included regressors, leading to biased coefficient estimates. Therefore, choice A is the correct answer as it states that the expected value of the error term, given the included regressors, is non-zero.

At a Mathematical Level,if the Two Conditions for Omitted Variable