When You Add State Fixed Effects to a Simple Regression

question 15

Multiple Choice

When you add state fixed effects to a simple regression model for U.S. states over a certain time period, and the regression R² increases significantly, then it is safe to assume that

• A)the included explanatory variables, other than the state fixed effects, are unimportant.
• B)state fixed effects account for a large amount of the variation in the data.
• C)the coefficients on the other included explanatory variables will not change.
• D)time fixed effects are unimportant.

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Definitions:

Negotiated

Discussed or arranged terms and conditions towards an agreement through a process of bargaining.

Assigned

Designated or allocated to someone or something for a specific purpose.

Certificate Of Deposit

A savings certificate entitling the bearer to receive interest after a fixed term deposit matures, with a fixed or variable interest rate.

Time Deposit

A deposit in a bank account that cannot be withdrawn for a preset period of time without incurring a penalty.