3. (5 points) What is the direction of the bias of the OLS estimator of ₁ in the simple linear regression model? Explain your answer using the 2x2 OVB matrix in Wooldridge and the slides.

If we use the OVB formula presented in the Woodbridge slides we would expect that the OLS estimator to be positive or moving in an upward direction because if we look at some of the omitted variables is a positive correlation to the outcome which is wage which in turn could mean that the omitted variable in this case also has a positive outcome when youre looking at wages so if we look at it from the 2 x 2 0VB Matrix presented by Woodbridge we see that B₂ >0 and corr(X₁,X₂) >0, which basically tells us that the bias that we wouldve gotten is positive.

4. (5 points) Now estimate the auxiliary regression of IQ on educ. Interpret the coefficient on educ in this regression. Is the relationship you estimate between IQ and educ consistent with your answer to question 3 above?

need and for number 4.