Author Question: What is meant by the term omitted variable in correlation analysis? Explain with an example. What ... (Read 101 times)

elizabeth18 · **on:** Jun 29, 2018

What is meant by the term omitted variable in correlation analysis? Explain with an example.

What will be an ideal response?

Question 2

If monetary equilibrium were to occur

A) inflation would not occur.
B) deflation would not occur.
C) the price level would be stable.
D) all of the above would be true.
E) none of the above would be true.

mcabuhat · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

An omitted variable is something that has been left out of a study which, if included, would explain why two variables are correlated. For example, it is seen that the rate of employees quitting is lower in firms that pay higher wages. Thus, a conclusion can be drawn that higher wages result in lower quit rates. But there are many other variables that might influence the quit rates apart from wages such as employee benefits provided by the firm, age of employees, work-life balance, etc. These variables that have been left out are omitted variables and if included in the study would better explain the quit rates of firms.

Answer to Question 2

D