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    Question

    In the classical linear regression model (CLRM), one of

    the key assumptions is that the error term has:
    A Zero mean Correct Answer Incorrect Answer
    B Constant variance Correct Answer Incorrect Answer
    C No autocorrelation Correct Answer Incorrect Answer
    D All of the above Correct Answer Incorrect Answer

    Solution

    Solution: The CLRM assumptions are essential for the OLS estimators to be BLUE (Best Linear Unbiased Estimator). Key assumptions about the error term ui include: 1. E(ui)=0 (zero mean) 2. Var(ui)=σ2 (homoscedasticity, constant variance) 3. Cov(ui,uj)=0 (no autocorrelation) All these together ensure unbiasedness, efficiency, and consistency of the OLS estimators.

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