Question

How can a chi-squared be done to figure out the relationship of Lumber prices to the GDP? What categories should lumber prices and gdp be broken into?

Answer 1

Chi Square Test of Independence can be be done to figure out the relationship of Lumber prices to the Gross Domestic Product (GDP). Chi Square Test of Independence can be applied only for 2 categorical variables. The frequency of each category for one nominal variable: here: Lumber prices is compared across the categories of the second nominal variable: here:GDP. Thus, Lumber prices in US Dollars per 1,000 board feet variation are to be split into convenient groups. Similarly GDP are to be split into convenient groups. The frequencies corresponding to both these variations of Lumber prices and GDP are to be collected and a 2 X 2 Contigency Table can be formed, from which Chi Square Test of Independence can be be done to figure out the relationship of Lumber prices to the Gross Domestic Product (GDP).