Question: 1. a) Suppose that the true linear regression model in a given situation is Y = B1+ B2X2i + Ui i = 1, 2,...,n

1. a) Suppose that the true linear regression model in a given

1. a) Suppose that the true linear regression model in a given situation is Y = B1+ B2X2i + Ui i = 1, 2,...,n and further that this model meets all the assumptions of Model A. Now, assume that the researcher mistakenly believes that the true model is Y = + Ui i = 1, 2,...,n and that she estimates this model using OLS. Prove that her estimator of will, in general, be biased. b) Suppose that the true linear regression model in a given situation is Y = + Ui i = 1, 2,...,n and further that this model meets all the assumptions of Model A. Now, assume that the researcher mistakenly believes that the true model is Y = B1+ B2X2i + Ui i = 1, 2,...,n and that she estimates this model using OLS. Prove that her estimators of and 2 will both be unbiased.

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