To explain personal consumption (CONS) measured in dollars, data is collected fo
ID: 2956423 • Letter: T
Question
To explain personal consumption (CONS) measured in dollars, data is collected forINC: personal income in dollars
CRDTLIM: $1 plus the credit limit in dollars available to the individual
APR: average annualized percentage interest rate for borrowing for
the individual
ADVT: per person advertising expenditure in dollars by manufacturers
in the city where the individual lives
SEX: gender of the individual; 1 if female, 0 if male
A regression analysis was performed with CONS as the dependent variable and ln(CRDTLIM), ln(APR), ln(ADVT), and SEX as the independent variables. The estimated model was
= 2.28 - 0.29 ln(CRDTLIM) + 5.7 ln(APR) + 2.35 ln(ADVT) + 0.39 SEX
Referring to Table 15-1, what is the correct interpretation for the estimated coefficient for APR?
A) A one percentage point increase in average annualized percentage interest rate will result in an estimated average increase of $5.77 on personal consumption, holding other variables constant.
B) A 100% increase in average annualized percentage interest rate will result in an estimated average increase of $5.77 on personal consumption, holding other variables constant.
C) A 1% increase in average annualized percentage interest rate will result in an estimated average increase of 5.77% on personal consumption, holding other variables constant.
D) A 100% increase in average annualized percentage interest rate will result in an estimated average increase of 5.77% on personal consumption, holding other variables constant.
Explanation / Answer
The estimated model was, CONS=2.28-0.29 ln(CRDTLIM)+5.7ln(APR)+2.35ln(ADVT)+0.39SEX The correct interpretation for the estimated coefficient for APR is that a one percentage point increase in average annualized percentage interest rate will result in an estimated average increase of $5.77 on personal consumption, holding other variables constant. Hence the Answer is A.