Arizona State University (ASU) ECN221 Business Statistics Exam 2 Practice

A categorical variable is defined as one that can be grouped into distinct categories or groups. This type of variable is often qualitative in nature and is used to classify observations based on characteristics or attributes rather than numerical values. For instance, variables such as gender, color, or type of car are categorical because they can be divided into specific groups—like male and female or red, blue, and green—making it possible to conduct analyses based on these categories.

The other options do not accurately define what a categorical variable is. A variable that can take on an infinite number of values describes a continuous variable, which represents measurements rather than categories. A numerical variable that represents measurements clearly refers to quantitative variables, which involve numerical data. The mention of a variable used only in regression analysis is misleading because categorical variables can be included in regression models, but they are not limited to this type of analysis and can be analyzed in various other statistical contexts.