Suppose That X₁ Is Measured with Error $\beta$ ₀ $\beta$

Suppose that X₁ is measured with error.
Y_i = $\beta$ ₀ + $\beta$ ₁X_1i + $\varepsilon$ _i
X_i = X*_1i + $\nu$ _i
In which of the following cases will the bias be most severe?

A) The variance of the independent variable ( $\sigma$ _x*) is much smaller than the variance of the error measurement error ( $\sigma$ _$\nu$ ) .
B) The variance of the independent variable ( $\sigma$ _x*) is much larger than the variance of the error measurement error ( $\sigma$ _$\nu$ ) .
C) The variance of the error measurement error ( $\sigma$ _$\nu$ ) is zero.
D) There will be no bias.

Correct Answer:

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