In an Effort to Decide If There Is an Association

question 132

Essay

In an effort to decide if there is an association between the year of a postal increase and the new postal rate for first class mail, the data were gathered from the United States Postal Service. In 1981, the United States Postal Service changed their rates on March 22 and November 1. This information is shown in the table below.

$\begin{array}{|c|c|}\hline \text {Year} &\text { Rate} \\\hline 1971 & 0.08 \\\hline 1974 & 0.10 \\\hline 1975 & 0.13 \\\hline 1978 & 0.15 \\\hline 1981 & 0.18 \\\hline 1981 & 0.20 \\\hline 1985 & 0.22 \\\hline 1988 & 0.25 \\\hline 1991 & 0.29 \\\hline 1995 & 0.32 \\\hline\end{array}$

-Would it be better for customers for a year to have a negative residual or a positive residual from this model? Explain.

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Definitions:

Real Rate of Interest

The interest rate adjusted for inflation, reflecting the true cost of borrowing.

Interest Rate Components

The factors that determine the total interest rate charged by lenders, which can include the base rate, margin, fees, and other costs.

Base Rate

The minimum interest rate set by a central bank, which serves as a benchmark for banks and other lenders when setting their interest rates.

Risk Premium

The extra return above the risk-free rate that investors require as compensation for the risk of an investment.