Which of the Following Correctly Identifies a Limitation of Logarithmic

question 19

Multiple Choice

Which of the following correctly identifies a limitation of logarithmic transformation of variables?

• A)Taking log of variables make OLS estimates more sensitive to extreme values in comparison to variables taken in level.
• B)Logarithmic transformations cannot be used if a variable takes on zero or negative values.
• C)Logarithmic transformations of variables are likely to lead to heteroskedasticity.
• D)Taking log of a variable often expands its range which can cause inefficient estimates.

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Definitions:

Liquidated

The process of converting assets into cash or settling debts, often used in the context of closing a business or satisfying creditors.

Creditors

Individuals or entities that lend money or extend credit, and to whom a debt is owed by debtors.

Assumes

Taking something for granted or accepting it as true without verification.

Debts

Amounts of money owed by one party to another, typically as a result of borrowing funds or purchasing goods and services on credit.