Question

1. Pick a minimum of 20 observations on any subject. This will include a dependent variable plus two independent variables that you may think are either negatively or positively correlated with the dependent variable. List the observed data (include the source). Then do the following:

a. State before doing any calculations whether you think they are positively or negatively correlated. What is your rationale?

Example: I test for a correlation between the quantity of coffee that people buy (Y) with the price of coffee (X1) and the household income (X2).   

I hypothesize that there is a negative correlation between quantity and price because people like to buy goods at lower rather than higher prices. I also hypothesize that there is also a positive correlation between the quantity of coffee and household income because people can buy more coffee when their income increases.

b. Draw a graph of each of the two independent variables with the dependent variable either by hand or by using Excel. (Do this by inserting an XY/Scatter chart.)

c. Use Excel to do the necessary regression. Give the values for the y-intercept, b1, and b2. Write out the equation. Also show R-square, the F-statistic and its p-value and the t-statistics with their respective p-values.

d. Test for multicollinearity using the rule that the two independent variables are multicollinear if their correlation coefficient is .70 or greater (implying r-square is .49 or greater). If they are multicolliear, give a brief statement on why do you think that is the case.

e.Pretend that this was an assignment from your manager and communicate your findings to the manager in 100 words or less. You should assume in preparing this memo:

• Your manager is not familiar with statistical terminology. So if you use terms like R- square or t-statistic, you need to explain what they mean.

Answer 1