1.Choose the correct answer regarding classical assumptions: 2.If the elasticity

Question

1.Choose the correct answer regarding classical assumptions:

2.If the elasticity of quantity with respect to prices is close to zero, how are the price and quantity related?

3. Choose the correctalternative(s) regarding to the residuals

4.Pure Heteroskedasticity occurs when:

HIDE QUESTION Choose the correct answer regarding classical assumptions: O We can multiply or divide the error term into any of the variables in the equation. O The model has to be linear in the X and Y values but not in the coefficients O It is required that the sum squares of the error to be zero O If the mean of the error terms are zero and has a constant variance, then the errors follow a bell shaped symmetrical distribution.

Explanation / Answer

1. Option 4
That is if mean of error term are zero and have constant variance then errors will follow a bell shaped symmetrical distribution

2. option 4
If price elasticity of demand is zero then it means the quantity demanded will not respond to changes in price and hence there is no relationship between the two.

3. Option 3 and option 4
That is, residuals are randomly scattered across 3 plots and there should be no pattern. Also, they must look normally distributed.

4.Option 1
In a correctly specified regression, pure Heteroskedasticity occurs when error term doesn't have a constant variance.

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