Suppose You're Running a Multiple Regression of Home Prices on Two

question 43

Multiple Choice

Suppose you're running a multiple regression of Home Prices on two treatment variables, City, which is a binary variable for whether or not the home is located in a city or not, and Finished Basement, which is a binary variable for whether or not the home has a finished basement. If you solve for the multiple regression using the moment conditions all of the following conditions must hold except for what?

• A) The sum of residuals must equal zero.
• B) The correlation between the residuals and Home Prices must be equal to zero.
• C) The correlation between the residuals and City must be equal to zero.
• D) The correlation between the residuals and Finished Basement must be equal to zero.

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Definitions:

Production

The process of creating goods and services through the combination of labor, materials, and capital.

Coase Theorem

A principle that if trade in an externality is possible and there are no transaction costs, bargaining will lead to an efficient outcome regardless of the initial allocation of rights.

Free-Rider Problem

A situation where some individuals consume more than their fair share of a public resource, or shoulder less of the cost of its production.

Public Good

A good that is both non-excludable and non-rivalrous, meaning individuals cannot be effectively excluded from use and where use by one individual does not reduce availability to others.