Question

QUESTION 33
True or False: When conducting analysis using categorical variables, we include a dummy variable for every category covered by the categorical variable.
True

False

QUESTION 34
We are analyzing the effects of regime type on corruption rates with the following model: Corruption = 10 - 0.1 GDP (per capita) - 2.0Democracy where Corruption is an index of corruption, GDP (per capita) is measured in thousands of dollars, and Democracy is a dummy variable that is equal to one if a country is a democracy and 0 otherwise. What is the expected rate of corruption of a democratic country with a per capita GDP of $50,000?
   A.   8.5
   B.   Not enough information to come up with an answer
   C.   13.0
   D.   - 4992

Answer 1

(33) We include only one variable in a regression line for a categorical variable with two categories. Therfore, we creates K-1 dummy variable for a categorical variable with K categories.

For example, gender has two category male and female so we will create one dummy variable for that.

Answer: FALSE.

(34) Corruption = 10 - 0.1 GDP (per capita) - 2.0Democracy

Where , GDP (per capita) is meaured in thousand of dollars

Democracy is a dummy variablle. It takes two values.

Democracy = 1 , If country is a democracy.

Democracy = 0, otherwise

expected rate of corruption of a democratic country with a per capita GDP of $50,000:

Put GDP (per capita) = 50 and Democacy = 1

=> Corrumption = 10 - 0.1(50) - 2 (1)

=> Corrunption = 10 - 5 - 2

=> Corruption = 3

Note: The closet look a like answer is 13. Whereas the correct answer is 3. So, it is better to mark option (C)

Answer: Option (C)