Question: In the linear model E(yi ) = ????0 + ????1xi, suppose that instead of observing xi we observe x i = xi + ui, where

In the linear model E(yi

) = ????0 + ????1xi, suppose that instead of observing xi we observe x∗

i = xi + ui, where ui is independent of xi for all i and var(ui) = ????2 u .

Analyze the expected impact of this measurement error on ????̂

1 and r.

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