An economist investigated the association betwoen a conclusions. Explain why eac

Question

An economist investigated the association betwoen a conclusions. Explain why each statement is incorrect. (Assume that all the caloulations were done properly) between a country's Lteracy Rate and Gross Domestic Product (GDP) and used the association to draw the following a) The Literacy Rate determines 64% of the GDP for a country. b) The slope of the line shows that an increase of 5% in Literacy Rate will produce a $1 billion improvement in GDP. a) Choose the correct answer below A. R2 is an indication of the nonlinearity of the model. The model is 64% nonlinear for Literacy Rate. 0 of the C. D. R2 is an indication of the appropriateness of the model. The model s 64% appropriate for Literacy Rat R2 measures the amount of variation explained by the model. Literacy Rate aco unts for 64% of the variability in GDP. u

Explanation / Answer

Solution:

a) D. R2 is an measures the amount of variation explained by the model. Literacy Rate accounts for 64% of the Variablility in GDP.

The model adequacy is measured using the R2 value. Here R2 =64%. Thus 64% variability in the GDP can be explained by the regression model.

b) D. Regression models cannot be interpreted casually. The model says nothing about the actual consequences of changing the Literacy Rate.

Explanation: The economist should have stated that the GDP will on average, increase $1 billion if the Literacy rate increases by 5%.

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