Question #113 - Reading 1 Multiple Regression

Reading: Reading 1 Multiple Regression

PDF File: Reading 1 Multiple Regression.pdf

Page: 56

Status: Unattempted

Correct Answer: B

Shared Context

- The predicted price of a house that has 2,000 square feet of space and 4 bedrooms is closest to: A) $114,000. B) $256,000. C) $185,000.

Question

Which of the following is most likely to present a problem in using this regression for forecasting?

Answer Choices:

A. Heteroskedasticity

B. Multicollinearity

C. Autocorrelation

Explanation

Multicollinearity is present in a regression model when some linear combination of the independent variables are highly correlated. We are told that the two independent variables in this question are highly correlated. We also recognize that unconditional heteroskedasticity is present – but this would not pose any major problems in using this model for forecasting. No information is given about autocorrelation in residuals, but this is generally a concern with time series data (in this case, the model uses cross-sectional data).

Actions

Practice Flashcards