Suppose you are interested in modeling the amount of money a household spends for a house.We would expect income to be a determining factor.In addition,the income tax rate for a household might be important since there are tax advantages to home ownership.If you were to run a regression of home purchase price on income and marginal tax rate,your results might be subject to:
A)multicollinearity.
B)heteroscedasticity.
C)specification bias.
D)autocorrelation.

Question

Quizplus · Accepted Answer

Income and marginal tax rate are likely to be highly correlated, leading to possible multicollinearity in the regression results. This can skew the coefficients and affect the interpretability of the model.

Suppose You Are Interested in Modeling the Amount of Money