Please choose the correct answer and provide brief explanation.
Consider a categorical predictor with 3 levels. Levels 1, 2, and 3 have been coded as indicator variables I1, I2, and I3 and included in a regression model with a continuous predictor variable X1.
Y = b0 + b1*I1*X1 + b2*I2*X1 + b3*I3*X1
The use of the indicator variables defines:
(a.) different slopes for each group
(b.) an intercept adjustment
Answer
We know that indicator variables are used to show presence or absence of a particular levels and indicator variable uses only 0 and 1 to represent absence and presence respectively.
By definition of indicator variables, it is clear that indicator variable is used in this equation to show the presence or absence of three levels, i.e. l1, l2 and l3.
b1, b2 and b3 are slopes corresponding to independent variable X1, X2 and X3.
So, when L1 = 0, the value of b1 will have no effect in the equation because the term b1*l1*X1 will become 0 and when l1 =1, the term becomes b1*X1.
Thus, we can say that the indicator variable defines the different slopes for each group and it has nothing to do with intercept.
So, option A is correct answer
Please choose the correct answer and provide brief explanation. Consider a categorical predictor with 3 levels....
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