Question

An omitted variable is a variable that ________.

A) is purposely left out as it does not aid an economic analysis
B) does not cause other variables in a study to change when it changes
C) is removed from a study as it can lead to the problem of reverse causality
D) has been left out, and if included, would explain why the variables considered in a study are correlated

Answer 1

D) has been left out, and if included, would explain why the variables considered in a study are correlated

Step-by-step explanation:

Omitted variable are those variable that is not considered in the study as an independent variable.

The reason behind the omitted variable is misspecification of the model, which can be due to the loss of data or impact of the independent variable(omitted variable) to the dependent variable is undetermined.

In regression, omitted variable is considered to be outlier that value lie outside the average variable variable.