4) If you compare the results of two misspecified regression models (below) with

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4) If you compare the results of two misspecified regression models (below) with the "true" multiple regression model (above), you will see that the results are different. caf.-157.4244-0.01 1 4PGNP, se- (9.8455) (0.0032) 0.1662 CM, = 263.8635-2.3905 FLR. se (21.2249) (0.2133) 06696 Does that mean the differences in the either ELR or PGNP? Explain why? values are attributable to the dropped variables 5) From the (sample) multiple regression model, explain R'and R3. Why do they have different values? From the two (sample) simple regression models, can we say that the second model is better fitted into the data? Why or why not?

Explanation / Answer

4.

The difference in the R2 values are attributable to the dropped variable. The R2 tells the variation in dependent variables explained by independent variables . The R2 = ESS/TSS.

The ESS (Explained Sum of Squares) is non decreasing function of variables that is it increases with increase in the no. of variables.Therefore also increases with the increase in variables.

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