3.) Learning to Use Regression Analysis

Question 1

Once a dependent variable is chosen, it is logical to follow this sequence…

Answer 1

1. ) Review the literature and develop the theoretical model.
2. ) Specify the model: Select the independent variables and the functional form.
3. ) Hypothesize the expected signs of the coefficients.
4. ) Collect the data. Inspect and clean the data.
5. ) Estimate and evaluate the equation
6. ) Document the results.

Question 2

After selecting the dependent variables, the specification of a model involves choosing the following components…

Answer 2

1. ) The independent variables and how they should be measured,
2. ) the functional (mathematical) form of the variables, and
3. ) the properties of the stochastic error term

• A regression equation is specified when each of these elements has been treated appropriately.

Question 3

A mistake of any of he three components of a model after selecting the dependent variable results in a ….

Answer 3

Specification Error

Question 4

What should specifying goal be?

Answer 4

to specify only relevant explanatory variables, those expected theoretically to assert a substantive influence on the dependent variable

Question 5

what sort of other theoretical economic concepts should be included?

Answer 5

Theory also indicates that complementary and substitute goods are important

Question 6

A dummy variable takes on…

Answer 6

the values of one or zero depending on whether a specified condition holds.

Question 7

In the demand equation for a final consumption good…

Answer 7

the quantity demanded is expected to inversely related to its price and the price of a complementary good and positively related to consumer income and the price of a substitute good.

Question 8

The first step in the written development of a regression model..

Answer 8

usually is to express the equation as a general function

Question 9

Step 4

Answer 9

Collect the Data, Inspect and Clean the Data

Question 10

All conclusions about signs, significance, and economic theory are…

Answer 10

independent of units of measurement

Question 11

The excess number of observations (three) over the number of coefficients to be estimated is the …

Answer 11

degrees of freedom

Question 12

The more degrees of freedom there are, the better because…

Answer 12

When the number of degrees of freedom is large, every positive error is likely to be balanced by a negative error

Question 13

A constant factor added to a variable alters only…

Answer 13

the intercept term without changing the slope coefficient itself

Question 14

An outlier is…

Answer 14

an observation that lies outside the range of the rest of the observations, and looking for outliers is an easy way to find data entry errors

Question 15

Step 5

Answer 15

Estimate and Evaluate the Equation

Question 16

Step 6

Answer 16

Document the Results

Question 17

Step 1

Answer 17

Review the literature and develop the theoretical model

Question 18

Step 2

Answer 18

Specify the model: select the independent variables and the functional form

Question 19

Step 3

Answer 19

Hypothesize the expected signs of the coefficients