Question

A variable used to model the effect of categorical independent variables in a regression model which generally takes only the value zero or one is called select one:

a. a residual.

b. interaction.

c. the coefficient of determination.

d. a dummy variable.

Answer 1

I believe the correct answer is option D. A variable used to model the effect of categorical independent variables in a regression model which generally takes only the value zero or one is called the dummy variable. It takes only a value of zero or one in order to indicate that there an absence or presence of a categorical effect that may arise in order to change the outcome. These are being used in order to sort out data into mutually exclusive groups. It is used typically in time series analysis, response modelling, bio-medical studies, economic forecasting and credit scoring.