A Regression Equation That Predicts the Price of Homes in Thousands

question 128

Multiple Choice

A regression equation that predicts the price of homes in thousands of dollars is t = 24.6 + 0.055x1 - 3.6x2, where x2 is a dummy variable that represents whether the house in on a busy street or not. Here x2 = 1 means the house is on a busy street and x2 = 0 means it is not. Based on this information, which of the following statements is true?

• A) On average, homes that are on busy streets are worth $3600 less than homes that are not on busy streets.
• B) On average, homes that are on busy streets are worth $3.6 less than homes that are not on busy streets.
• C) On average, homes that are on busy streets are worth $3600 more than homes that are not on busy streets.
• D) On average, homes that are on busy streets are worth $3.6 more than homes that are not on busy streets.

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Definitions:

Disposable Income

Monetary assets available for households to invest in spending and saving after tax obligations.

Saving

The process of setting aside a portion of current income for future use, or the funds that have been set aside for such purposes.

Disposable Income

Financial holdings households can direct towards spending and saving activities after tax deductions.

Consumption

The act of using up goods and services to satisfy human needs and wants, considered a principal component of GDP.