Statistical correlation versus causation

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Reference no: EM1395334

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In many business and economics applications, we may observe highly correlated variables when each pair of observations corresponds to a particular time period. For example, we would expect a high correlation between average annual wages and the U.S. gross national product (GNP) when measured over time.

a. Since wages may be a good predictor of U.S. GNP, is it also true that an increase in wages causes an increase in U.S. GNP?

b. Explain your answer in part (a) above.

c. Describe a different example of where the independent variable, while highly correlated to the dependent variable, does not cause the dependent variable to change directly.

d. Discuss the differences and relationship between correlation and determination as it applies to linear regression analysis.

Reference no: EM1395334

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