申論題

Question III (20 points, 10 points each)

 Consider the case where the true population model has two explanatory variables and an error term:
 and we assume that this model satisfies Gauss-Markov assumptions.

4. Suppose that our primary interest is inβ₁,, the partial eflect of x₁ on y. We thus estimate the equation excluding x₂:

Note that the variable x₂ may or may not be correlated with x₁ . What is the effect, if any, of excluding x2 from the model on the estimatedβ₁Explain.