Think About It

  1. 23.

    1. In February, the market had positive returns, but S&P was negative. The opposite happened the next month.

    2. Yes. These months reveal variation in the indices that is not explained by movement in the other.

    3. Keep them. These points reduce the correlation between the explanatory variables.

  2. 25. The t−statistic for testing remains the same. The estimate would be 100 times smaller, but its standard error would also be 100 times smaller.

  3. 27.

    1. The data have two cases at every combination of income and age. A scatterplot of age and income is a square grid of dots.

    2. Yes, because Age and Income are uncorrelated.

    3. Expect the slope for Age to be negative.

  4. 29.

    1. Not as designed. The two explanatory variables are perfectly correlated.

    2. The ...

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