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    Question

    Consequences of high

    multicollinearity:
    A Leads to biased and inconsistent OLS estimators. Correct Answer Incorrect Answer
    B Decreases the standard errors of the regression coefficients, making them appear more significant. Correct Answer Incorrect Answer
    C Makes it difficult to ascertain the individual effect of independent variables on the dependent variable. Correct Answer Incorrect Answer
    D Primarily causes the R-squared value to drop significantly. Correct Answer Incorrect Answer

    Solution

    A significant consequence of high multicollinearity is that it makes it difficult to ascertain the individual effect of independent variables on the dependent variable. While it doesn't bias OLS estimators, it inflates their standard errors, leading to less precise estimates and making it harder to determine the statistical significance of individual predictors.

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