This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Economics 120B Name: _________________________ Professor Yongil Jeon Summer 2005 Student ID#: _________________________ Answer to Homework #2 (Exam 2, Spring 2005) 1. (10 points) Comment on the following statement (that is, under what conditions is it true?). The yield per acre of corn is regressed on the quantity of fertilizer, using fertilizer quantities in the range typically used by farmers. The slope of the estimated regression line would certainly be positive. However, it is well known that if an enormously high amount of fertilizer were to be used, corn yield would be very low. Therefore, regression estimates are not of much use in forecasting. Answer : The linear model might still be appropriate if the quantity of fertilizer used were close to the values used to estimate the regression. 2. (10 points) Discuss the following statement: In many practical regression problems, multi-collinearity is so severe that it would be best to run separate simple linear regressions of the dependent variable on each independent variable. Answer : The statement is not valid. Separating the variables may give us some indication about the statistical significance of their individual effects. But it will not provide any information about their influence on the dependent variable, when they are taken...
View Full Document