# Regression models that describe macroeconomic properties in the United States often have to deal with large amounts of collinearity. For

## Question:

(a) This plot shows timeplots of the two series. Do you think that they are correlated? Estimate the correlation.

(b) If the variables are expressed on a log scale, will the transformation to logs increase, de-crease, or not affect the correlation between these series?

(c) If both variables are used as explanatory variables in a multiple regression, will you be able to separate the two?

(d) You€™re trying to build a model to predict how changes in the macro economy will affect consumer demand. You€™ve got sales of your firm over time as the response. Suggest an approach to using the information in both of these series in a multiple regression that avoids some of the effects of collinearity.

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**Related Book For**

## Statistics For Business Decision Making And Analysis

**ISBN:** 9780321890269

2nd Edition

**Authors:** Robert Stine, Dean Foster

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