Linear Regression

Question 1

What are the three assumptions of linear regressions? And what are each of their implications?

Answer 1

Linearity
Relationship between dependant and independent variable is linear
Homoskedasticity
Variance of the error terms is the SAME for all observations
Independence of errors
Means that the regression residuals are uncorrelated
Normality
Regression residuals are normally distributed.
Independence of independent variables
Means that the independent variables are not transformations in some way of one another.
Also means that no matter the choice of independent variable used, it does not have any correlation with the error term.