4) A study was conducted to assess the influence of various factors on the start of new firms

in the computer chip industry. For a sample of 70 countries the following model was

estimated:

Y = -59.31 + 4.983 X1 + 2.198 X2 + 3.816 X3 - 0.310 X4 R

2= 0.766

where

Y = new business starts in the industry

X1 = population in millions

X2 = industry size

X3 = measure of economic quality of life

X4 = measure of political quality of life

a) Why were so many variables added to this model?

b) Would the R be different with just one explanatory variable?