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Asked by Nardley Docteur on May 08, 2024

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What is the purpose of an indicator variable in a regression model?

A) An indicator variable allows us to increase our R-squared value.
B) An indicator variable allows us to include quantitative variables in our model.
C) An indicator variable allows us to fix violations of our constant variance assumption.
D) An indicator variable allows us to fix violations of our normality assumption.
E) An indicator variable allows us to include categorical variables in our model.

Indicator Variable

A variable that takes on the value of 0 or 1 to indicate the absence or presence of a specific condition or attribute.

Regression Model

A statistical technique that models and analyzes the relationship between a dependent variable and one or more independent variables.

Categorical Variables

Variables that represent types or categories, grouping observations into distinct sets based on a characteristic such as gender or ethnicity.

  • Understand the role and purpose of indicator (dummy) variables in regression models.
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AB
Archit BatraMay 13, 2024
Final Answer :
E
Explanation :
An indicator variable, also known as a dummy variable, allows us to include categorical variables in our regression model. These variables are typically represented as 0s and 1s, with a 1 indicating the presence of a particular category and a 0 indicating its absence. This allows us to estimate the effect of categorical variables on the outcome variable in a regression framework.

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