In a multiple regression model, the error term ε is assumed to
A) have a mean of 1.
B) have a variance of zero.
C) have no distribution.
D) be normally distributed.

Question

Quizplus · Accepted Answer

The error term ε is commonly assumed to be normally distributed with a mean of zero and constant variance. This assumption is necessary for conducting hypothesis testing, constructing confidence intervals, and making prediction intervals. Therefore, the best choice is D which states that the error term should be normally distributed.

In a Multiple Regression Model, the Error Term ε Is