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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)=Οƒ2 (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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