Answer: 3

## Explanation When modeling quarterly seasonality with an intercept term, we need to use **3 dummy variables**. **Reasoning:** - There are 4 quarters in a year - If we include an intercept term (β₀), it represents the baseline level for one quarter - To avoid perfect multicollinearity (the dummy variable trap), we omit one quarter - The omitted quarter becomes the reference category - Therefore: 4 quarters - 1 = **3 dummy variables** For example: - D₁ = 1 for Q1, 0 otherwise - D₂ = 1 for Q2, 0 otherwise - D₃ = 1 for Q3, 0 otherwise - Q4 becomes the reference category (when all dummies = 0)

Author: LeetQuiz Editorial Team