What Usually Happens to Autocorrelation When We Add a Lagged

question 14

Multiple Choice

What usually happens to autocorrelation when we add a lagged dependent variable to the model?

• A) Autocorrelation gets bigger.
• B) Autocorrelation gets smaller.
• C) Autocorrelation stays the same.
• D) We cannot test for autocorrelation when a lagged dependent variable is included in the model.

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Definitions:

Short Run

A period of time in which at least one input, typically capital, is fixed, and producers can only adjust the variable inputs like labor.

Long Run

A period in economics during which all inputs and operations can be varied, allowing for the adjustment to changes in market conditions or demand.

Very Long Run

In microeconomics, a period of time long enough that technology can change and firms can introduce new products.