Question: A simple linear regression, y = 0 + 1x + , is estimated with cross-sectional data. The resulting residuals e along with the values of

A simple linear regression, y = β0 + β1x + ε, is estimated with cross-sectional data. The resulting residuals e along with the values of the explanatory variable x are shown in the accompanying table.

x 1 2 5 7 10 14 15 20 24 30 e −2 1 −3 2 4 −5 −6 8 11 −10

a. Graph the residuals e against the values of the explanatory variable x and look for any discernible pattern.

b. Which assumption is being violated? Discuss its consequences and suggest a possible remedy.

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