Problem 1

A uses uses a regression equation to predict home heating bills (dollar cost), based on home size
(square feet). The correlation between predicted bills and home size is 0.70. What is the correct
interpretation of this finding?
(A) 70% of the variability in home heating bills can be explained by home size.
(B) 49% of the variability in home heating bills can be explained by home size.
(C) For each added square foot of home size, heating bills increased by 70 cents.
(D) For each added square foot of home size, heating bills increased by 49 cents.
(E) None of the above.
Solution
The correct answer is (B). The coefficient of determination measures the proportion of variation in the
dependent variable that is predictable from the independent variable. The coefficient of determination
is equal to R2; in this case, (0.70)2 or 0.49. Therefore, 49% of the variability in heating bills can be
explained by home size.
In the context of regression analysis, which of the following statements are true?
I. When the sum of the residuals is greater than zero, the data set is nonlinear.
II. A random pattern of residuals supports a linear model.
III. A random pattern of residuals supports a non-linear model.
(A) I only
(B) II only
(C) III only
(D) I and II
(E) I and III
Solution
The correct answer is (B). A random pattern of residuals supports a linear model; a non-random pattern
supports a non-linear model. The sum of the residuals is always zero, whether the data set is linear or
nonlinear.
In the context of regression analysis, which of the following statements is true?

I. A linear transformation increases the linear relationship between variables.

II. A logarithmic model is the most effective transformation method.
III. A residual plot reveals departures from linearity.
(A) I only
(B) II only
(C) III only
(D) I and II only
(E) I, II, and III
Solution
The correct answer is (C). A linear transformation neither increases nor decreases the linear
relationship between variables; it preserves the relationship. A nonlinear transformation is used to
increase the relationship between variables. The most effective transformation method depends on the
data being transformed. In some cases, a logarithmic model may be more effective than other
methods; but it other cases it may be less effective. Non-random patterns in a residual plot suggest a
departure from linearity in the data being plotted.
In the context of regression analysis, which of the following statements are true?
I. When the data set includes an influential point, the data set is nonlinear.
II. Influential points always reduce the coefficient of determination.
III. All outliers are influential data points.
(A) I only
(B) II only
(C) III only
(D) All of the above
(E) None of the above
Solution
The correct answer is (E). Data sets with influential points can be linear or nonlinear. In this lesson, we
went over an example in which an influential point increased the coefficient of determination. With
respect to regression, outliers are influential only if they have a big effect on the regression equation.

Sometimes, outliers do not have big effects. For example, when the data set is very large, a single
outlier may not have a big effect on the regression equation.