THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION

question 82

Essay

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
An economist is in the process of developing a model to predict the price of gold.She believes that the two most important variables are the price of a barrel of oil (x₁)and the interest rate (x₂).She proposes the model y = β₀ + β₁x₁ + β₂x₂ + β₃x₁x₃ + ε.A random sample of 20 daily observations was taken.The computer output is shown below.
THE REGRESSION EQUATION IS
y = 115.6 + 22.3x₁ + 14.7x₂ - 1.36x₁x₂

S = 20.9 R-Sq = 55.4%
ANALYSIS OF VARIANCE

-Suppose that the true linear model for a process was Y = β₀ + β₁X₁ + β₂X₂ + β₃X₃ and you incorrectly estimated the model y = α + α₁X₂.Discuss the bias that results from using the second model.

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Definitions:

Human Behaviors

Patterns of actions or reactions of humans, generally in response to stimuli from the environment or from internal thoughts.

Rigidly Patterned

Describes behavior or processes that are strictly regular and unvarying, often adhering to a fixed or inflexible structure or sequence.

Instincts

Innate, typically fixed patterns of behavior in animals in response to certain stimuli.

Hunger Strike

A form of protest where individuals refuse to eat food to draw attention to a cause or grievance.