What is the third variable problem and how does the partial correlation technique help with this problem?
What will be an ideal response?
Answer:
Partial correlation analysis involves studying the linear relationship between two variables after excluding the effect of one or more independent factors.
Simple correlation does not prove to be an all-encompassing technique especially under the above circumstances. In order to get a correct picture of the relationship between two variables, we should first eliminate the influence of other variables.
For example, study of partial correlation between price and demand would involve studying the relationship between price and demand excluding the effect of money supply, exports, etc.
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