Question

Researchers studied the factors affecting credit card expending allocation. They collected information from a random sample of individuals and their credit card use. They then estimated the following multiple linear regression model: In Amount_On_Card = 8. 00 -0. 02Interest Rate where In_amount_on_card is the natural log of the amount of debt on the credit card measured in Mexican pesos, interest_rate is the interest rate on the credit card measured in percent, Help the researchers interpret their results by answering the following questions: a. What is the predicted amount of debt on a credit card that has a 20 percent interest rate? Round to 1 decimal and include the units of measurement (Hint: interest rate is measured in percent so that the value of the variable InterestRate equal 1 if the interest rate were 1 percent). B. Consider two individuals. Individual A has an interest rate of 10 percent while individual B has an interest rate of 25 percent. Complete the following sentence using the estimated regression coefficients. The first blank is for a magnitude (include all decimals), the second blank for a unit of measurement and the third blank for a direction (higher/lower/equal). I expect individual A to have debt on the card that individual B. C. Complete the following sentence to interpret the coefficient on interest rate: If interest rates increase by 1 , we predict a in the amount of debt on the credit card, controlling for card limit, the total number of other cards, and whether it is December or not. First blank: insert unit of measurement for a change in the interest rate Second and third blank: insert the magnitude of the change in the expected value of debt in the card and the correct unit of measurement for this change Fourth blank: insert the direction of the change (i. E. Increase, decrease, or no change)

Answer 1

a. The predicted amount of debt on a credit card with a 20 percent interest rate can be calculated using the regression model:

In Amount_On_Card = 8.00 - 0.02 * Interest_Rate

Substituting the given interest rate value:

In Amount_On_Card = 8.00 - 0.02 * 20

In Amount_On_Card = 8.00 - 0.4

In Amount_On_Card = 7.6

Therefore, the predicted amount of debt on a credit card with a 20 percent interest rate is approximately 7.6 (in natural log form).

b. The sentence using the estimated regression coefficients can be completed as follows:

"I expect individual A to have debt on the card that is _____________ (include all decimals) _________ (unit of measurement) _____________ (higher/lower/equal) than individual B."

Given the regression model, the coefficient for the interest rate variable is -0.02. Therefore, the sentence can be completed as:

"I expect individual A to have debt on the card that is 0.02 (unit of measurement) lower than individual B."

c. The sentence to interpret the coefficient on the interest rate can be completed as follows:

"If interest rates increase by 1 _____________ (unit of measurement), we predict a _____________ (magnitude of the change) _____________ (unit of measurement) increase in the amount of debt on the credit card, controlling for card limit, the total number of other cards, and whether it is December or not. This change will be _____________ (increase/decrease/no change) in the debt amount."

Given that the coefficient on the interest rate variable is -0.02, the sentence can be completed as:

"If interest rates increase by 1 percent, we predict a 0.02 (unit of measurement) decrease in the amount of debt on the credit card, controlling for card limit, the total number of other cards, and whether it is December or not. This change will be a decrease in the debt amount."

• Next time when you ask questions make sure to ask 1 question at a time or else no one will answer.