E(ui Xi)= 0 says that
A)dividing the error by the explanatory variable results in a zero (on average).
B)the sample regression function residuals are unrelated to the explanatory variable.
C)the sample mean of the Xs is much larger than the sample mean of the errors.
D)the conditional distribution of the error given the explanatory variable has a zero mean.

Question

E(ui  Xi)= 0 says that
A)dividing the error by the explanatory variable results in a zero (on average). 
B)the sample regression function residuals are unrelated to the explanatory variable. 
C)the sample mean of the Xs is much larger than the sample mean of the errors. 
D)the conditional distribution of the error given the explanatory variable has a zero mean.

Quizplus · Accepted Answer

E(ui|Xi) = 0 indicates that the error term is not systematically related to the explanatory variable Xi, and the mean of the error term conditional on Xi is zero. This is a basic assumption of the linear regression model.

E(ui Xi)= 0 Says That