Answer-first summary for fast verification
Answer: First quarter
## Explanation In this regression model with dummy variables: - The model includes dummy variables for Q2, Q3, and Q4 - Q1 is the **reference category** (omitted category) - When all dummy variables = 0 (D₂,t = 0, D₃,t = 0, D₄,t = 0), this represents the first quarter - Therefore, the intercept β₀ represents the average value of sales for Q1 **Mathematical breakdown:** - For Q1: SALES = β₀ + β₂(0) + β₃(0) + β₄(0) = β₀ - For Q2: SALES = β₀ + β₂(1) + β₃(0) + β₄(0) = β₀ + β₂ - For Q3: SALES = β₀ + β₂(0) + β₃(1) + β₄(0) = β₀ + β₃ - For Q4: SALES = β₀ + β₂(0) + β₃(0) + β₄(1) = β₀ + β₄ Thus, β₀ represents the baseline average sales for the first quarter, and the coefficients β₂, β₃, β₄ represent the difference in average sales between each quarter and the first quarter.
Author: LeetQuiz .
Ultimate access to all questions.
No comments yet.
Consider the following regression equation utilizing dummy variables for explaining quarterly SALES in terms of the quarter of their occurrence:
SALESₜ = β₀ + β₂D₂,t + β₃D₃,t + β₄D₄,t + eₜ
where:
SALES = a quarterly observation of EPS
D₂,t = 1 if period t is the second quarter, D₂,t = 0 otherwise
D₃,t = 1 if period t is the third quarter, D₃,t = 0 otherwise
D₄,t = 1 if period t is the fourth quarter, D₄,t = 0 otherwise
The intercept term β₀ represents the average value of sales for the:
A
First quarter
B
Second quarter
C
Third quarter
D
Fourth quarter