Consider the multiple regression model containing three independent variables, under Assumptions MLR.1 through MLR.4:

y 5 b0 1 b1x1 1 b2x2 1 b3x3 1 u.

You are interested in estimating the sum of the parameters on x1 and x2; call this u1 5 b0 1 b1.

(i) Show that u^

1 5 b^

1 1 b^

2 is an unbiased estimator of u1.

(ii) Find Var1u

^

1 2 in terms of Var1b^

1 2,Var1b^

2 2, and Corr1b^

1, b^ 2 2.