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Suppose We Omit X3 (A Variable That Does Not Affect β\beta

Question 13

Multiple Choice

Suppose we omit X3 (a variable that does not affect Y) from the following in a bivariate model
Yi = β\beta 0 + β\beta 1X1i + β\beta 2X2i + ε\varepsilon i
And suppose each of the independent variables are correlated with the other independent variables. What is the consequence of omitting X3 on β\beta 1hat?


A) No effect; β\beta 1hat will be unbiased.
B) The bias will depend only on the correlation of X1 and X3.
C) The bias will depend on the correlations of all the independent variables.
D) The bias will depend only on the correlation of X1 and X2.

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