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Why Is the Number of Dummy Variables to Be Entered

Question 3

Multiple Choice

Why is the number of dummy variables to be entered into the regression model always equal to the number of groups (g) minus 1 (g−1) ?


A) To avoid model misspecification
B) To increase the R-squared value
C) To avoid the situation of perfect multicollinearity
D) To control other variables in the model

Correct Answer:

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