Question: Consider the linear regression madel y = By + 81x + u, where the regressor x may be correlated with the error term u. A

Consider the linear regression madel y = By + 81x + u, where the regressor x may be correlated with the error term u. A potential instrumental variable z for the regressor x must satisfy which one of the following conditions for 2SLS to be consistent? a. cov(z,u)=0 b. cov(z,x) not equal to 0 c. Var{ulz) = constant d. cov(z,u)=0 and cav(z,x) not equals to 0 e. cov(z,u)=0 and Var(ulz) = constant

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