TABLE 12-5
The managing partner of an advertising agency believes that his company's sales are related to the industry sales. He uses Microsoft Excel to analyze the last four years of quarterly data (i.e., n = 16) with the following results:

-If the Durbin-Watson statistic has a value close to 4, which assumption is violated?
A) normality of the errors
B) independence of errors
C) homoscedasticity
D) none of the above

Question

TABLE 12-5
The managing partner of an advertising agency believes that his company's sales are related to the industry sales. He uses Microsoft Excel to analyze the last four years of quarterly data (i.e., n = 16) with the following results:
 
-If the Durbin-Watson statistic has a value close to 4, which assumption is violated?
A) normality of the errors 
B) independence of errors 
C) homoscedasticity 
D) none of the above

Quizplus · Accepted Answer

The Durbin-Watson statistic tests for autocorrelation or lack of independence in the errors. A value close to 4 indicates that there is no significant autocorrelation, but if the value is too close to 0 or 2, it suggests positive or negative autocorrelation, respectively. This violates the assumption of independence of errors. Therefore, the best choice is B.

TABLE 12-5 The Managing Partner of an Advertising Agency Believes That His