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THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION

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THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
An economist is in the process of developing a model to predict the price of gold.She believes that the two most important variables are the price of a barrel of oil (x1)and the interest rate (x2).She proposes the model y = β0 + β1x1 + β2x2 + β3x1x3 + ε.A random sample of 20 daily observations was taken.The computer output is shown below.
THE REGRESSION EQUATION IS
y = 115.6 + 22.3x1 + 14.7x2 - 1.36x1x2
THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION: An economist is in the process of developing a model to predict the price of gold.She believes that the two most important variables are the price of a barrel of oil (x<sub>1</sub>)and the interest rate (x<sub>2</sub>).She proposes the model y = β<sub>0</sub> + β<sub>1</sub>x<sub>1</sub> + β<sub>2</sub>x<sub>2</sub> + β<sub>3</sub>x<sub>1</sub>x<sub>3</sub> + ε.A random sample of 20 daily observations was taken.The computer output is shown below. THE REGRESSION EQUATION IS y = 115.6 + 22.3x<sub>1</sub> + 14.7x<sub>2</sub> - 1.36x<sub>1</sub>x<sub>2</sub> S = 20.9 R-Sq = 55.4% ANALYSIS OF VARIANCE -Suppose that the true linear model for a process was Y = β<sub>0</sub> + β<sub>1</sub>X<sub>1</sub> + β<sub>2</sub>X<sub>2</sub> + β<sub>3</sub>X<sub>3</sub> and you incorrectly estimated the model y = α + α<sub>1</sub>X<sub>2</sub>.Discuss the bias that results from using the second model.
S = 20.9 R-Sq = 55.4%
ANALYSIS OF VARIANCE
THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION: An economist is in the process of developing a model to predict the price of gold.She believes that the two most important variables are the price of a barrel of oil (x<sub>1</sub>)and the interest rate (x<sub>2</sub>).She proposes the model y = β<sub>0</sub> + β<sub>1</sub>x<sub>1</sub> + β<sub>2</sub>x<sub>2</sub> + β<sub>3</sub>x<sub>1</sub>x<sub>3</sub> + ε.A random sample of 20 daily observations was taken.The computer output is shown below. THE REGRESSION EQUATION IS y = 115.6 + 22.3x<sub>1</sub> + 14.7x<sub>2</sub> - 1.36x<sub>1</sub>x<sub>2</sub> S = 20.9 R-Sq = 55.4% ANALYSIS OF VARIANCE -Suppose that the true linear model for a process was Y = β<sub>0</sub> + β<sub>1</sub>X<sub>1</sub> + β<sub>2</sub>X<sub>2</sub> + β<sub>3</sub>X<sub>3</sub> and you incorrectly estimated the model y = α + α<sub>1</sub>X<sub>2</sub>.Discuss the bias that results from using the second model.
-Suppose that the true linear model for a process was Y = β0 + β1X1 + β2X2 + β3X3 and you incorrectly estimated the model y = α + α1X2.Discuss the bias that results from using the second model.

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