Omitted variable bias
A)will always be present as long as the regression R2

Question

Omitted variable bias
A)will always be present as long as the regression R2 < 1.
B)is always there but is negligible in almost all economic examples.
C)exists if the omitted variable is correlated with the included regressor but is not a determinant of the dependent variable.
D)exists if the omitted variable is correlated with the included regressor and is a determinant of the dependent variable.

Quizplus · Accepted Answer

Omitted variable bias exists if the omitted variable is correlated with the included regressor and is a determinant of the dependent variable. If the omitted variable is not a determinant of the dependent variable, there will be no bias. Therefore, option C is incorrect. Option A is incorrect because the presence of omitted variable bias does not depend on the R2 value. Option B is incorrect because omitted variable bias can be significant in some economic examples.

Omitted Variable Bias