What is an omitted variable bias? What are the main consequences of omitted variable biases? Consider the following true process, yi = ?0 + ?1Xi + i . (0.1) However, the following regression relationship is estimated: y?i = ?? 1Xi . (0.2) Will the estimate of ?? 1 be biased if the true value of ?0 6= 0? Explain.

2. Question 2: What is an omitted variable bias? What are the main consequences of omitted variable biases? Consider the following true process, 1% = :60 + lX + E- (0.1) However, the following regression relationship is estimated: g; 2 ingi- (0.2) Will the estimate of 31 be biased if the true value of g % 0? Explain