THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
A researcher is interested in determining the monthly household expenditures on groceries.He models the relationship as follows: Y = β 0 + β 1 X 1 + β 2 X 2 + β 3 X 3 + ε,where Y is the monthly dollar value spent on groceries,X 1 is the household's monthly income,X 2 is the number of people living in the household,and X 3 is a dummy variable = 1 if both the adults in the household work.Taking a sample of 250 households,the researcher gets the following results:
= 172.1 + 0.048x 1 + 33.1x 2 + 43.2x 3 .
-How should the researcher interpret the coefficient of the dummy variable?
A)Households with both adults working approximately spend $43.20 on groceries,under the assumption that all the other independent variables in the model are held constant.
B)Households with both adults working spend,on average,$43.20 less than other households,under the assumption that all the other independent variables in the model are held constant.
C)Households with both adults working spend,on average,$43.20 more than other households,under the assumption that all the other independent variables in the model are held constant.
D)There is no difference between the types of households and their spending on groceries,under the assumption that all the other independent variables in the model are held constant.

Question

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
A researcher is interested in determining the monthly household expenditures on groceries.He models the relationship as follows: Y = β 0 + β 1 X 1 + β 2 X 2 + β 3 X 3 + ε,where Y is the monthly dollar value spent on groceries,X 1 is the household's monthly income,X 2 is the number of people living in the household,and X 3  is a dummy variable = 1 if both the adults in the household work.Taking a sample of 250 households,the researcher gets the following results:  
= 172.1 + 0.048x 1 + 33.1x 2 + 43.2x 3 .
-How should the researcher interpret the coefficient of the dummy variable?
A)Households with both adults working approximately spend $43.20 on groceries,under the assumption that all the other independent variables in the model are held constant. 
B)Households with both adults working spend,on average,$43.20 less than other households,under the assumption that all the other independent variables in the model are held constant. 
C)Households with both adults working spend,on average,$43.20 more than other households,under the assumption that all the other independent variables in the model are held constant. 
D)There is no difference between the types of households and their spending on groceries,under the assumption that all the other independent variables in the model are held constant.

Quizplus · Accepted Answer

The coefficient of a dummy variable in a regression model represents the average difference in the dependent variable (in this case, spending on groceries) for the group represented by the dummy variable (households with both adults working) compared to the reference group (households with not both adults working), holding all other variables constant. Therefore, if the coefficient is positive (as indicated by the $43.20), it means that, on average, households with both adults working spend $43.20 more on groceries than other households, assuming all other factors are equal.