Examine whether the following statements are true or false. Give an explanation. a The Durbin-Watson test for serial correlation is not applicable if there are lagged dependent variables as explanatory variables. (5 points) b. Serial correlation in the errors u leads to biased estimates and biased standard errors when the regression equation y = Bx + u is estimated by ordinary least square. (5 points) c. An investigator estimating a demand function in levels and first difference obtain R's of 0.85 and 0.75, respectively. He chose the equation in levels because he got a higher R”. This is a valid reason for choosing between two models. (5 points)

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