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A measurement error occurs in a regression model when: a. the observed value of a variable used in the model differs from its actual value. b. the model includes more than two independent variables. c. the partial effect of an independent variable depends on unobserved factors. d. the dependent variable is binary.

Question

A measurement error occurs in a regression model when:

a. the observed value of a variable used in the model differs from its actual value.

b. the model includes more than two independent variables.

c. the partial effect of an independent variable depends on unobserved factors.

d. the dependent variable is binary.

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Solution

The correct answer is:

a. the observed value of a variable used in the model differs from its actual value.

This is because measurement error in a regression model refers to the discrepancy between the observed value and the actual value of a variable. This can lead to biased and inconsistent estimates. The other options do not accurately describe a measurement error.

Option b is incorrect because having more than two independent variables does not inherently cause a measurement error.

Option c is incorrect because while unobserved factors can influence the partial effect of an independent variable, this is more related to omitted variable bias rather than measurement error.

Option d is incorrect because the nature of the dependent variable (whether it's binary or not) does not determine the occurrence of a measurement error.

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