Consider the following to answer the question(s) below:
Suppose that data on labour productivity and unit labour costs were obtained for the retail industry from 1995 through 2014. A regression was estimated to describe the linear relationship between the two variables.
-Which of the following re-expressions of the data would be appropriate?
A) Use a logarithmic transformation.
B) Square the data.
C) Use a geometric transformation.
D) Take the square root of the data.
E) Take the reciprocal of the data.

Question

Consider the following to answer the question(s) below:
Suppose that data on labour productivity and unit labour costs were obtained for the retail industry from 1995 through 2014. A regression was estimated to describe the linear relationship between the two variables. 
-Which of the following re-expressions of the data would be appropriate?
A) Use a logarithmic transformation. 
B) Square the data. 
C) Use a geometric transformation. 
D) Take the square root of the data. 
E) Take the reciprocal of the data.

Quizplus · Accepted Answer

A logarithmic transformation would be appropriate in this case as it can help to linearize the relationship between labour productivity and unit labour costs. Square, geometric, square root or reciprocal transformations may not be appropriate as they may not result in a linear relationship between the two variables.

Consider the Following to Answer the Question(s) Below