Multicollinearity Is Severe If the Largest Variance Inflation Factor (VIF)

question 19

Multiple Choice

Multicollinearity is severe if the largest variance inflation factor (VIF) is greater than ________.

• A) 100
• B) 5
• C) 10
• D) 1

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Definitions:

Adverse Selection

A situation in which asymmetrical information leads to the selection of suboptimal market participants, often seen in insurance markets where those most likely to make a claim are also most likely to seek insurance.

Market Signals

Information or indicators that suggest the future direction of market prices, helping investors and businesses make decisions.

Uncertainty

The state of having limited knowledge where it is impossible to exactly describe existing states, outcomes, or future events.

Individual Mandate

A requirement for individuals to have health insurance or pay a penalty, originally a key provision of the Affordable Care Act.