Omitted variable bias
A) will always be present as long as the regression R2 < 1.
B) is always there but is negligible in almost all economic examples.
C) exists if the omitted variable is correlated with the included regressor but is not a determinant of the dependent variable.
D) exists if the omitted variable is correlated with the included regressor and is a determinant of the dependent variable.
Answer: D
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In a simple economy (no government sector), the equilibrium level of GDP will be less than the full employment level of income if, at the full employment level of income, the
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