A firm finds the coefficient of correlation between y = annual ...

[big1devin]

A firm finds the coefficient of correlation between y = annual sales and x = annual expenditure on research and development to r = +.095 . Comment on the likely direction of causation, if any, between these variables.

Question 2

What is the Lilliefors test, and how can it contribute to regression and correlation analysis?

[choc0chan]

Answer to Question 1

Correlation does not necessarily imply causation of any kind. Perhaps sales have increased as a result of better products which came from more money invested in research and development. On the other hand, perhaps the R&D budget is set on past or anticipated sales. It is also very possible that both of these variables have simply increased over time.

Answer to Question 2

The Lilliefors test, introduced in Chapter 14, is used to examine whether the residuals could have come from a normally distributed population. Recall that one of the assumptions of the regression model is whether the residuals are from a normal population with a mean of zero.