A Researcher Wants to Examine How the Remaining Balance on $100,000

question 63

Multiple Choice

A researcher wants to examine how the remaining balance on $100,000 loans taken 10 to 20 years ago depends on whether the loan was a prime or subprime loan. He collected a sample of 25 prime loans and 25 subprime loans and recorded the data in the following variables: Balance = the remaining amount of loan to be paid off (in $) ,
Time = the time elapsed from taking the loan,
Prime = a dummy variable assuming 1 for prime loans, and 0 for subprime loans.
The regression results obtained for the models:
Model A: Balance = β₀ + β₁Prime + ε
Model B: Balance = β₀ + β₁Time + β₂Prime + β₃Time × Prime + ε
Model C: Balance = β₀ + β₁Prime + β₂Time × Prime + ε,
Are summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Suppose that at the 5% significance level you do not reject the null hypothesis, H₀: β₁ = β₃ = 0, when testing the joint significance of Time and Time × Prime in Model B. Should you delete both Time and Time × Prime from Model B?

• A) No, because Model B has the highest R².
• B) No, because Model B reduces then to Model A with a lower adjusted R².
• C) No, because Model B reduces than to Model A with lower R².
• D) Yes, because Model B reduces than to Model C with higher adjusted R².

---

Definitions:

Intrinsic Rewards

Psychological or satisfaction-based rewards that individuals derive directly from engaging in an activity or task rather than from any external compensation.

Theories of Motivation

These are various psychological theories that aim to explain what drives human behavior, highlighting factors that stimulate the desire to undertake particular actions.

Motivation

The forces or factors that influence individuals to act towards achieving a goal.

Job Performance

Job performance encompasses the effectiveness, quality, and efficiency with which an employee carries out their assigned tasks and responsibilities within a workplace.