- CFA Exams
- CFA Exam: Level II 2021
- Study Session 2. Quantitative Methods (1)
- Reading 4. Introduction to Linear Regression
- Subject 1. Linear regression

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**CFA Practice Question**

A financial economist runs the following regression:

B. dependent; independent.

C. independent; independent.

Demand for cars = alpha + beta*income level + error

In this regression, the demand for cars is ______ variable and the income level is ______ variable.

A. dependent; dependent.

B. dependent; independent.

C. independent; independent.

Correct Answer: B

The left-hand side variable is the dependent variable since its behavior in the equation is being explained by the right-hand side variable, which is the independent variable. Note, however, that this does not imply any kind of causal relationship in general.

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