Consider the Model $y = \beta _ { 0 } + \beta _ { 1 } x _ { 1 } + \beta _ { 2 } x _ { 2 } + \beta _ { 3 } x _ { 3 } + \varepsilon$

question 60

Multiple Choice

Consider the model $y = \beta _ { 0 } + \beta _ { 1 } x _ { 1 } + \beta _ { 2 } x _ { 2 } + \beta _ { 3 } x _ { 3 } + \varepsilon$ where $x _ { 1 }$ is a quantitative variable and $x _ { 2 }$ and $x _ { 3 }$ are dummy variables describing a qualitative variable at three levels using the coding scheme $x _ { 2 } = \left\{ \begin{array} { l l } 1 & \text { if level } 2 \\ 0 & \text { otherwise } \end{array} \quad x _ { 3 } = \left\{ \begin{array} { l l } 1 & \text { if level } 3 \\ 0 & \text { otherwise } \end{array} \right. \right.$
The resulting least squares prediction equation is $\hat { y } = 16.3 + 2.3 x _ { 1 } + 3.5 x _ { 2 } + 18 x _ { 3 }$ . What is the response line (equation) for $E ( y )$ when $x _ { 2 } = 0$ and $x _ { 3 } = 1$ ?

• A) \(\hat { y } = 16.3 + 4.1 x _ { 1 }\)
• B) \(\hat { y } = 16.3 + 2.3 x _ { 1 }\)
• C) \(\hat { y } = 18.1 + 2.3 x _ { 1 }\)
• D) \(\hat { y } = 18.6 + 2.3 x _ { 1 }\)

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Definitions:

Investment

The allocation of resources, such as capital or time, with the expectation of generating an income or profit.

Consumption Goods

Products and services that are used by individuals for personal enjoyment and satisfaction, not for further production.

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Economists who believe that reducing tax rates and deregulation will stimulate economic growth by increasing production.

Real Interest Rate

The excess of the interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.