Consider the following regression model,

whereanddepends on the value of, i.e.,.

Choose thecorrectstatement.

a.To get around the problem, we often assume thatis normally distributed.

b.To fix the problem, we need to have an instrumental variable.

c.This problem implies that errors are correlated with one of.

d.If we assume, the confidence interval is not valid.

e.None of the above is correct.

Consider the following regression model, yi = B1+B2xi2+ ... + BKXi*+ e; where Ele, | x;]= 0 and Var(e;| x.) depends on the value of x;, i.e., Var(e;| x;) = 02. Choose the correct statement. a. To get around the problem, we often assume that e, is normally distributed. O b. To fix the problem, we need to have an instrumental variable. OC. This problem implies that errors are correlated with one of (x;?, ..., X;k). O d. If we assume Var(e;] x ) = 2, the confidence interval is not valid. O e. None of the above is correct