Suppose you are interested in studying the relationship between education and wage. More specifically, suppose that you believe the relationship to be captured by the following linear regression model,
Wage = βo + β1 Education + u
Suppose further that the only unobservable that can possibly affect both wage and education is intelligence of the individual.
OLS assumption (1): The conditional distribution of u; given X; has a mean of zero. Mathematically, E(u/Xi) = 0.
Which of the following provides evidence against of OLS assumption #1? (Check all that apply)
A. corr(Intelligence, Education) = 0.
B. E(Intelligence Education = x) = E(Intelligence Education = y) for all x + y.
C. covariance(Intelligence, Education) #0.
D. corr(Intelligence, Education)#0.
