Question

Section 1: True/False, & explain why three or more sentences:

2. In the regression model Y_i = β₀ + β₁X_i + β₂D_i + β₃(X_i × D_i) + u_i, where X is a continuous variable and D is a binary variable, β_{3 has no meaning since (Xi×Di) = 0 when Di= 0.}

Answer 1

ANSWER:

Yes, it is true when =0, = 0 then Yi becomes

so here in the above equation, there is no   , so when =0: has no meaning

The effect of X depends on D

=increment to the effect of X, when D= 1 then Yi becomes

here increment to the effect of X

and when these two   =1 and =0 indicates the difference in slopes of two regression lines