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Q6 Ch 3 (10%) a. What is the meaning of the statement ”correlation does not mean...

Q6 Ch 3 (10%)

a. What is the meaning of the statement ”correlation does not mean causation”?

b. What does t-statistic measure?

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Answer #1

Correlation does not mean causation means that just because two variables are related does not mean that one causes the other. For example, in 2007 during the recession it may have been noticed that the prices of two variables - houses and cheese may have fallen. On the other hand, after 2012 the prices of both houses and cheese would have risen. So the price of house and cheese are correlated because they follow the same trend in this example. However, correlation does not mean causation as rise in price of houses does not cause rise in price of cheese and vice-versa.

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