Economic ability is seen as a major determinant of varying public expenditures per capita among states in 1960. Two factors modify the simple relationship of expenditures to economic ability, however. First is the fact that Nevada has an undue influence on the overall regression. Second is the fact that expenditures per capita in Western states exceed those of Eastern states with comparable economic ability. The first can be seen by identifying Nevada in the scatter dia gram below, and the second by running and interpreting the two-predictor re gression of expenditures on economic ability and the dummy variable for West- ern states. Students will benefit from running the regressions with Nevada excluded. Also, it is instructive to create a dummy variable for Nevada (1 if Nevada, 0 otherwise), and running the regression analysis with and without the indicator variable for Western states. Pay particular attention to the resulting coefficient(s) for economic ability, which is the principle factor under study.