If a Residual Plot Exhibits a Curved Pattern in the Residuals

question 125

Multiple Choice

If a residual plot exhibits a curved pattern in the residuals, this means that:

• A) the errors are not normally distributed.
• B) there must be a curvilinear relation between x and y.
• C) there is no significant relation between x and y.
• D) there is a problem with constant variance.

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Definitions:

Induced Consumption

Consumer spending that increases as income rises, and decreases when income falls, reflecting a direct relationship between income and consumption.

Consumption Function

An economic formula that represents the relationship between total consumption and gross national income.

Annual Consumption

The total amount of goods and services used or consumed by individuals or groups within a one-year period.

Disposable Income

Disposable income refers to the amount of money that households have available for spending and saving after income taxes have been accounted for.