How Does the Interpretation of the Coefficient on the Income

question 8

Multiple Choice

How does the interpretation of the coefficient on the income to debt ratio change in the linear probability model of whether a mortgage applicant was approved for a loan or not if the outcome variable was Denied_i instead of Approved_i?

• A) It won't change.
• B) The coefficients will be the same, but the standard errors will change.
• C) One will be a model of causality, the other will be purely about correlation.
• D) One coefficient will be the change in probability of being denied, while the other will be the change in probability of being approved.

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Definitions:

Agreements

Arrangements or contracts between parties defining their rights, responsibilities, and relationships.

Kinked-Demand

A demand curve hypothesis in oligopolistic markets that explains why firms may not change their prices even when costs change, due to competitive reactions.

Oligopolist

A firm or business that is part of a market structure where a few companies dominate the industry, often leading to limited competition.