Question

Consider the following regression model, y = β₀ + β₁x_A + β₂x_B + β₃x_A·x_B + u (1). Which of the following statements is correct?

	a.	When the partial effect of an explanatory variable xA on the dependent variable depends on the magnitude of another explanatory variable xB, we say explain it by only looking that the coefficient of  xA.
	b.	When there is an interaction effect between variable xA and variable xB, the partial effect of xA on the dependent variable is β3.
	c.	To test whether there is an interaction effect between variable xA and variable xB in model (1), one can simply run a t test of significance on β3.
	d.	All of the above.

Answer 1

Answer: c) To test whether there is an interaction effect between variable x_A and variable x_B in model (1), one can simply run a t test of significance on β₃

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When there is an interaction effect between variable x_A and variable x_B, the partial effect of x_A on the dependent variable is given by β1

When the partial effect of an explanatory variable x_A on the dependent variable depends on the magnitude of another explanatory variable x_B, we say explain it by only looking that the coefficient of x_A*x_B.