THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION

question 196

Multiple Choice

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
A loan officer is interested in examining the determinants of the total dollar value of residential loans made during a month.The officer used lnY = β₀ + β₁lnX₁ + β₂lnX₂ + β₃lnX₃ + lnε to model the relationship,where Y is the total dollar value of residential loans in a month (in millions of dollars) ,X₁ is the number of loans,X₂ is the interest rate,and X₃ is the dollar value of expenditures of the bank on advertising (in thousands of dollars) .Using data from the past 24 months,she obtained ln
= 0.67 + 1.2 ln x₁ - 1.45 ln x₂ + 1.07 ln x₃.
-How would the officer interpret the coefficient on x₂?

• A)As the interest rate increases,the total loan amount decreases at a decreasing rate.
• B)As the total loan amount increases,the interest rate decreases at an increasing rate.
• C)As the interest rate increases,the total loan amount decreases at an increasing rate.
• D)As the total loan amount increases,the interest rate decreases at a decreasing rate.

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Definitions:

Random Variable

A variable whose outcomes are determined by the occurrences of a random event.

Exponential Random Variable

A type of random variable that describes the time between events in a Poisson process, representing occurrences that happen at a constant rate.

Exponentially Distributed

Describes the time between events in a Poisson point process, i.e., a process in which events occur continuously and independently at a constant average rate.

Random Variable

This refers to a variable where its values are linked to the outputs of unpredictable phenomena.