You have identified multicollinearity as a problem in your regression model. Which of the following is NOT a suggestion the textbook makes with regard to what to do?
A) remove one of the involved independent variables from the model
B) combined the involved variables into an index
C) create an interaction effect with the two involved variables
D) all of the above are suggestions the textbook makes.

Question

Quizplus · Accepted Answer

In fact, the textbook suggests that creating an interaction effect may exacerbate the issue of multicollinearity rather than solve it. Therefore, it is not a recommended solution to the problem. The other two suggestions (removing one of the involved independent variables or combining the involved variables into an index) are both potential solutions to address multicollinearity in a regression model.

You Have Identified Multicollinearity as a Problem in Your Regression