Question

If beta 1 is estimated by OLS, would you expect the estimated value to be larger or smaller than the true value of beta 1? A. The OLS estimator of beta 1 is likely to be larger than the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is positively correlated with the regression error, u Subscript i. B. The OLS estimator of beta 1 is likely to be equal to the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is not correlated with the regression error, u Subscript i. C. The OLS estimator of beta 1 is likely to be smaller than the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is negatively correlated with the regression error, u Subscript i. D. The OLS estimator of beta 1 is likely to be smaller than the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is positively correlated with the regression error, u Subscript i.

          If beta 1 is estimated by OLS, would you expect the estimated value to be larger or smaller than the true value of beta 1? 
A.
The OLS estimator of beta 1 is likely to be larger than the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is positively correlated with the regression error, u Subscript i. 
B.
The OLS estimator of beta 1 is likely to be equal to the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is not correlated with the regression error, u Subscript i.
C.
The OLS estimator of beta 1 is likely to be smaller than the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is negatively correlated with the regression error, u Subscript i.
D.
The OLS estimator of beta 1 is likely to be smaller than the true value of beta 1, because ln left parenthesis Upper P Superscript butter Baseline right parenthesis is positively correlated with the regression error, u Subscript i.

Added by Ryan C.

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