This is the most complex regression model we’ve seen so far. It includes squared variables (also known as second order), the regular first-order variables, and an interaction term. I discuss here how to write this out using the output as a guide.
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More fill in the blanks! Hooray! The methods used to find the missing values are the same as we used in Chapter 17 with little to no variation - so this section shouldn't hold any surprises for you.
PART 4 asks us to test the overall validity of the model, or stated more simply do the independent variables (taken as a group) help to predict the annual sales. In PART 5 we are given the values of the independent variables and must provide an actual estimation of sales. This is a question that MANY students get wrong.
How to create indicator variables when you are given raw nominal data. I go into detail about the binary (yes/no) nature of these new variables as well as the importance of having a 'missing' category.
Part (b) asks us for the POPULATION regression model, while part (c) is looking for the SAMPLE regression model. Learn what the difference is - and how to write both when working with indicator (dummy) variables.
Working with the coefficients of indicator variables can be confusing. The test of slope requires a new interpretation. I show you how the new wording connects with what you learned in simple and multiple linear regression.
Just like with the test of slope, interpreting the coefficient of an indicator variable requires new wording to get it right. Remember - indicator variables are not simply nominal variables, they are BINARY nominal variables.
Here we complete the test of the hypotheses created in part (d) using a 5% significance level. These tests will tell us whether or not there is a difference between the category represented by an indicator variable and the 'missing' category discussed in part (a)
Test your understanding of Chapter 18: Model Building. Each question is accompanied by a mini-video lecture showing you how I decided which solution was the correct one.