Midterm

Question 1

What does the linearity assumption hold?

Answer 1

We want the points to be symmetric around 0.

Question 2

What does the homoskedasticity assumption hold?

Answer 2

We want to check if the length of the vertical lines are constant.

Question 3

What does the independence assumption hold?

Answer 3

States that the error terms are independent and don’t follow a pattern
-> When we have a cross-sectional (random sample) we don’t need to check for independence

Question 4

What does the normality assumption hold?

Answer 4

The observations around 0 should follow a normal distribution around the mean