Economics · OLS Assumptions
Given below are two statements regarding Ordinary Least Squares (OLS) regression assumptions: Statement I: One of the assumptions under the OLS method states that the regression model is linear in the parameters, though it may or may not be linear in the variables. Statement II: Under OLS, the variance of the error (disturbance) term is assumed to vary depending on the value of the explanatory variable. In light of the above statements, choose the correct answer:
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Statement I is false, Statement II is true
- 2Statement I is true, Statement II is false✓
- 3Both Statement I and Statement II are false
- 4Both Statement I and Statement II are true
Correct answer
Statement I is true, Statement II is false
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