Which of the Following Statements Is True

Multiple Choice

Which of the following statements is true?

A) Fixed effects estimation is not suitable when the unobserved cluster effect is correlated with one or more explanatory variables.
B) Fixed effects approach is not applicable if the key explanatory variables change only at the level of the cluster.
C) The ordinary least squares standard errors are incorrect when there is cluster effect.
D) Random effects estimation can be applied to a cluster sample only if the unobserved cluster effect is correlated with one or more explanatory variables.