Using the Following Cubic Model Specification to Show the Relationships

Using the following cubic model specification to show the relationships between pollution and income, Eit = β0 + β1Yit + β2Y2i t + β3Y3it + β4Zit + ε, which of the following is accurate concerning the parameters β1, β2, and β3?

A) An N-shaped relationship between income and pollution is obtained when β1
> 0, β2 < 0, and β3 > 0.
B) An N-shaped relationship between income and pollution is obtained when β1
> 0, β2 < 0, and β3 = 0.
C) An EKC or inverted U-shaped relationship is implied when β1 > 0, β2 < 0, and
β3 = 0.
D) An N-shaped relationship between income and pollution is obtained when β1
= 0, β2 < 0, and β3 > 0.
E) An N-shaped relationship between income and pollution is obtained when β1
> 0, β2 = 0, and β3 = 0.

Correct Answer:

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