$$\ln Q _ { t } = a + b \ln P _ { t } + c \ln G D P _ { t }$$
One of the advantages of using the following function in estimation is
A) problems with multicollinearity will be eliminated.
B) problems with heteroscedasticity will be eliminated.
C) the estimated slope coefficients are all elasticities.
D) None of the above is correct.

Question

Quizplus · Accepted Answer

The given function is a log-linear model where the dependent variable and some or all independent variables are in logarithmic form. The estimated slope coefficients in such a model represent the elasticity of the dependent variable with respect to the independent variables. Elasticity measures the percentage change in the dependent variable for a one percent change in an independent variable, making choice C correct. Choices A and B are incorrect because transforming variables into logarithms does not necessarily eliminate multicollinearity or heteroscedasticity.

ln⁡Qt=a+bln⁡Pt+cln⁡GDPt\ln Q _ { t } = a + b \ln P _ { t } + c \ln G D P _ { t }lnQt​=a+blnPt​+clnGDPt​

$\ln Q _ { t } = a + b \ln P _ { t } + c \ln G D P _ { t }$