Is the following statement True False or Uncertain You will

Is the following statement True, False or Uncertain. You will need to justify your answer.

In practice, the simple linear regression model y= b0 + b1x + u is likely to be a poor model that should be checked by using an auxiliary regression where the OLS residuals are regressed on x to check for mis-specification.

Solution

True. Misspecification is quite common problem. One of the test for it is to use residuals in auxiliary regression R² WILL GET SOME INFORMATION ABOUT IT.