Question 67

Suppose we have the following regression equation using dummy variables for explaining quarterly expenses in terms of the quarter of their occurrence:

$$\text{EXPENSES}_t = \beta_0 + \beta_1 D_{1,t} + \beta_2 D_{2,t} + \beta_3 D_{3,t} + \varepsilon_t$$

where:

• $\text{EXPENSES}_t$ = a quarterly observation of expenses
• $D_{1,t} = 1$ if period $t$ is the first quarter, $D_{1,t} = 0$ otherwise
• $D_{2,t} = 1$ if period $t$ is the second quarter, $D_{2,t} = 0$ otherwise
• $D_{3,t} = 1$ if period $t$ is the third quarter, $D_{3,t} = 0$ otherwise

The intercept term $\beta_0$ represents the average value of EXPENSES for: