Quadratic influence on monthly debt payments

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Reference no: EM131798708

You collect data on 26 metropolitan areas to analyze average monthly debt payments in terms of income and the unemployment rate. A portion of the data is shown in the accompanying table; the complete data set can be found on the text website, labeled Debt Payments.

2108_income and the unemployment rate.png

a. Estimate the model Debt = β₀ + β₁ lnc + β₂Unemp + ε. Is unemployment significant at the 5% level?

b. You are told that the unemployment rate might have a quadratic influence on monthly debt payments. Provide an intuitive justification for this claim.

c. Estimate Debt = β₀ + β₁ lnc + β₂Unemp + β₃Unemp² + ε to determine if Unemp and Unemp² are jointly significant at the 5% level.

Reference no: EM131798708

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