We would like to determine if the Corruption Index belongs in the regression. Wh

Question

We would like to determine if the Corruption Index belongs in the regression. What is the 95% critical value from this test (to 2 decimal places)?

Exhibit 3 Below you are given a partial computer output based on a sample of 19 countries relating their debt (Y in billion dollars), GDP (X1 in billion dollars) and the score on a corruption index (X2). The higher the corruption index, the more corrupt a country is. Source of Variation Sum of Squares Degrees of Freedom Mean Square F Regression 150 Error TOTAL 200 18 Intercept GDP (X1) Corruption Index (X2) 2.00 Coefficient Standard Error 6.25 0.5 7.865 0.5 0.5

Explanation / Answer

here degree of freedom for error =n-p-1 (where p is number of independent variables)_

=19-2-1=16

for 16 df and 95% level crtiical value of t=2.12

here test statitsic for corruption index (X2)=coefficient/std error =2/0.5=4

as test statsitic is in critical region we can conclude that corruption index is significant for regression

and therefore belongs in the regression.

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