A microeconomist wants to determine how corporate sales are influenced by capital and wage spending by companies.She proceeds to randomly select 26 large corporations and record information in millions of dollars.A statistical analyst discovers that capital spending by corporations has a significant inverse relationship with wage spending.What should the microeconomist who developed this multiple regression model be particularly concerned with?
A)Randomness of error terms
B)Collinearity
C)Normality of residuals
D)Missing observations

Question

Quizplus · Accepted Answer

The microeconomist should be particularly concerned with collinearity, as capital spending and wage spending may be highly correlated with each other, which can cause problems in interpreting the coefficients and making accurate predictions with the regression model.

A Microeconomist Wants to Determine How Corporate Sales Are Influenced