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:

Entropy

The second law of thermodynamics, whereby over time a system naturally moves toward chaos and disorder, and dissipates. An open system staves off entropy through adaptation to change and is hence negentropic.

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Groups or entities that operate based on collective decision-making and shared objectives or values.