Reference no: EM132520099
Problem 1:
You've come across research explaining the recent credit bubble by obesity. The research provided a strong correlation as proof that the credit bubble was in fact caused by people gaining weight, as seen in the following chart.
Critically evaluate the research findings and point out any potential problems with the methodology.
Problem 2
You are an investment analyst and you are trying to build a model explaining a recent uptick in inflation. You have identified three variables which influence inflation - unemployment, median salary change, and the change in the price level of imports. The regression equation you have constructed is as follows:
y = β1x1 + β2x2 + β3x3
Where:
y - Inflation
x1 - Unemployment
x2 - Median salary change
x3 - Change in the price level of imports
While testing for the significance of your regression model, you have determined that all slopes β are significantly different from zero, but x1 and x2 (unemployment and median salary change) are not independent, and there is a statistically significant relationship between these two variables.
Critically evaluate this problem and propose a solution.