If the variance of the error term is not the same for all observations, we ________.
A) get estimators that are biased
B) can perform tests of significance
C) cannot conduct tests of significance
D) Both get estimators that are biased and cannot conduct tests of significance are correct.

Question

Quizplus · Accepted Answer

When the variance of the error term is not the same for all observations, a condition known as heteroscedasticity occurs. This violates one of the key assumptions of classical linear regression models, making it difficult to conduct tests of significance because the standard errors of the estimates can be biased, leading to incorrect inferences.

If the Variance of the Error Term Is Not the Same